Stocks quoted in this article:
General Electric Company (NYSE:GE) -- which is on tap to report quarterly earnings later this week -- was popular with option bulls on Monday, as approximately 50,000 calls crossed the tape during the course of the session. This was a 9% increase over the equity's typical daily call volume, and almost triple the number of puts exchanged. Yesterday's activity echoed that of last week, with longer-term options taking center stage once again.
More specifically, nearly 13,500 calls changed hands at the January 2014 25 strike -- almost three-quarters of them at the ask price, suggesting they were purchased. Meanwhile, open interest surged by 8,831 contracts overnight, confirming the initiation of new long positions.
Since the calls traded at a volume-weighted average price (VWAP) $0.58, GE must power north of breakeven at $25.58 (strike price plus the VWAP) by January expiration in order for the buyers to begin profiting. This reflects a rise of 5.6% to the stock's present perch at $24.23, as well as territory not surmounted on a daily closing basis since October 2008.
At last check, the delta for this call stood at 0.37, meaning it has a 37% chance of moving into the money during its lifetime. However, should the shares remain below the strike price over the next few months, the most yesterday's traders stand to lose is the initial cash outlay.
From a technical standpoint, GE has advanced more than 15% year-to-date, but has trailed the broader S&P 500 Index (SPX) on a relative-strength basis over the past three months. Still, a look at the charts shows that the shares continue to trade above support at their 40-week moving average, which has cushioned several pullbacks since December 2011.
As alluded to earlier, the firm is due to reveal quarterly earnings before the market opens on Oct. 18, and has bested or matched consensus bottom-line estimates in each of the past eight quarters. What's more, General Electric Company (NYSE:GE) has gained an average of 1.1% the week after posting results. For the third quarter, analysts are expecting a profit of 35 cents per share, a penny shy of last year's reported earnings.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis«
perspective, please visit our Trading Floor Blog section.