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Bulls Rally On Strong General Electric Company (GE) Earnings Reaction

General Electric Company's May 27 call was bought to open on Thursday

by 4/21/2014 9:23 AM
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Option Brief: General Electric Company (NYSE:GE) rose 1.7% on Thursday -- the most of any Dow component -- after providing an upbeat outlook. Specifically, CEO Jeff Immelt said, the "U.S. gets a little bit better every day. Europe is improving. The growth markets continue to expand and will provide growth during the year even with volatility." In the stock's options pits, call volume soared to more than three times the average daily pace, with a number of speculators betting on additional gains in the near term.

The most active non-expiring strike in GE's options pits last Thursday was the May 27 call, where 16,700 contracts changed hands. The majority of these positions crossed at the ask price, signaling buyer-driven activity. Plus, the strike saw the highest increase in open interest over the weekend, pointing to the initiation of new positions. The volume-weighted average price (VWAP) for the out-of-the-money calls was $0.26, making breakeven at the close on Friday, May 16 -- when front-month options expire -- $27.26, or the strike plus the VWAP.

Outside of a handful of daily closes north of this mark from mid-November through early January, a sustained move above $27 has proven difficult for GE since 2008. Should the shares fail to rise the 1.7% necessary from their current perch at $26.56 to topple the strike price, the most the speculators stand to lose is the initial cash outlay. According to GE's Schaeffer's Volatility Index (SVI) of 14%, which ranks lower than 97% of similar readings taken in the past year, Thursday's call buyers can rest easy knowing premium on these front-month options is affordable at the moment, from a volatility standpoint.

Looking ahead, General Electric Company (NYSE:GE) will host its annual meeting of shareholders on Wednesday. This year's Chicago-based event is slated for an 11 a.m. ET start time.


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