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General Electric Company (GE) Options at Bargain-Basement Prices

General Electric Company's short-term options are attractively priced, historically speaking

by 4/23/2014 9:43 AM
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Option Brief: General Electric Company (NYSE:GE) has tacked on 2.6% so far this month, thanks to a post-earnings bull gap on April 17. However, options players are wagering on even more short-term upside for the blue chip -- and are picking up bullish bets at bargain-basement prices.

GE's weekly 5/2 26-strike call garnered the most attention yesterday, with close to 6,500 contracts exchanged. The majority of the calls crossed on the ask side, suggesting they were bought, and open interest surged by almost 5,500 contracts overnight, hinting at fresh initiations.

The calls traded at a volume-weighted average price (VWAP) of $0.78, meaning the buyers will reap a reward if GE is sitting north of $26.78 (strike plus VWAP) at the close on Friday, May 2, when the options expire. From the equity's current perch of $26.56, it would take just a fractional gain to topple breakeven. Delta on the calls sits at 0.80, implying a roughly 80% chance GE will be sitting atop the strike price at expiration.

Risk, meanwhile, is limited to the initial premium paid for the calls, should GE backpedal beneath the strike within the option's lifetime. As alluded to earlier, though, short-term options are relatively cheap right now, as the stock's Schaeffer's Volatility Index (SVI) of 14% sits just 1 percentage point from an annual low. What's more, the security's 30-day at-the-money implied volatility hit a 52-week nadir in yesterday's session, falling 4.1% to end at 12%.

On the charts, GE has outperformed the broader S&P 500 Index (SPX) by nearly 3 percentage points during the past month, and has nearly doubled since grazing $14 in October 2011. Off the charts, General Electric Company (NYSE:GE) will host its annual shareholder meeting today.


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