General Motors Corporation (NYSE: GM) announced last night that it is cutting production at six plants in order to cut costs in the face of weaker sales, as noted by Brian White. The company is spinning the cuts, claiming that the lower production levels will allow for less overtime and the market seems to agree this morning. If you agree, it might be a good time to check out a bullish hedged trade on GM.

After hitting a one year-high of $38.66 in June, the stock has seen two sharp drops over the past two months, finding support right around $30. This morning, GM opened at $31.54. So far today the stock has hit a low of $31.37 and a high of $31.85. As of 10:45, GM is trading at $31.43, up $0.10 (0.3%). The chart for GM looks neutral but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 2 months as long as GM is above $25 at October expiration. General Motors would have to fall by more than 21% before we would start to lose money.

GM hasn't been below $28 at all in the past year and has shown support around $30.50 recently. This trade could be risky if the auto-making industry takes a big hit from the credit problems, but even if that happens, this trade could be protected by support around $29.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in GM.

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