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Option Brief: General Electric Company (NYSE:GE) has been charting a path steadily higher atop its 10-month moving average since December 2011. In fact, the stock tagged a five-year peak of $28.09 on Dec. 31. Although the equity has pared a portion of these gains in recent months -- GE was last seen lingering near $27.26 -- traders in today's session are betting on a deeper move into multi-year-high territory over the next six weeks, a time frame that encompasses the company's next quarterly earnings event.
Taking a step back, call volume has soared to nearly three times the intraday average this morning, and per the stock's rising 30-day at-the-money implied volatility (IV), short-term options are in demand. Specifically, GE's July 28 call has seen the bulk of this early action, where 10,484 contracts have crossed the tape. The majority of these were exchanged at the ask price, and IV is up 3.2 percentage points -- two indications new positions are being purchased. Data from the International Securities Exchange (ISE) confirms that at least some of the activity is of the buy-to-open kind.
Based on the volume-weighted average price (VWAP) of $0.19, traders will profit if General Electric is perched above $28.19 (strike plus VWAP) at the close on Friday, July 18, when back-month options expire. Gains are theoretically unlimited with each additional step above breakeven the stock takes, while risk is capped at the initial premium paid, should GE finish south of the strike at expiration. However, with the equity's Schaeffer's Volatility Index (SVI) of 14% ranked lower than 93% of similar readings taken in the past year, premium on GE's short-term options is affordable, from a volatility perspective.
As touched upon, the company is slated to take its turn in the earnings confessional the morning of July options expiration. Over the past eight quarters, General Electric Company (NYSE:GE) has matched or exceeded analysts' bottom-line estimates in each of these showings, resulting in a single-session, post-earnings gain of 0.5% for the stock. For GE's second quarter, forecasts are for a profit of 39 cents per share -- a 3-cent improvement over the company's year-ago results.