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Bargain-Hunting Option Bulls Bombard General Electric Company (GE)

Premium on General Electric Company's front-month options is at historically low levels

by 8/26/2014 2:20 PM
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Put buying has been popular in General Electric Company's (NYSE:GE) options pits in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the equity's 10-day put/call volume ratio of 0.67 rests just 1 percentage point from an annual bearish peak.

In today's session, however, option traders have shifted their attention to GE calls, with volume running at a 48% mark-up to the average intraday pace. Buy-to-open activity has been detected at the stock's September 26.50 call -- the most active GE strike thus far -- where 21,520 contracts have changed hands for a volume-weighted average price (VWAP) of $0.18.

Based on this average entry price, call buyers will profit if GE is sitting above breakeven at $26.68 (strike plus VWAP) at the close on Friday, Sept. 19 -- when front-month options expire. Losses, meanwhile, are limited to 100% of the premium paid, should the equity finish south of the strike at expiration. Now, however, appears to be an opportune time to place bets on GE's near-term trajectory at a relative bargain, as the stock's Schaeffer's Volatility Index (SVI) of 13% ranks lower than 94% of similar readings taken in the past year.

In recent weeks, General Electric Company (NYSE:GE) has found a stern layer of resistance near the $26.40 mark -- which coincides with the equity's 80-day moving average. What's more, a lofty accumulation of call open interest is currently found at the aforementioned September 26.50 strike, which could reinforce this area as a technical ceiling, as the hedges related to these bets unwind ahead of expiration. In today's session, the security is bucking the broad-market trend higher, and was last seen off 0.6% to trade at $26.05.


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