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General Electric Put Volume Spikes Ahead of Earnings

Buy-to-open put activity speeds up with GE's earnings on the horizon

by 10/16/2012 1:09 PM
Stocks quoted in this article:

Put activity is accelerated on General Electric Company (NYSE:GE - 22.69) today. Roughly 34,000 put contracts have changed hands, about an 81% upside to the average intraday put volume. By comparison, around 36,000 call contracts have crossed the tape, around 25% more than expected.

Traders have turned their attention to the November 22-strike put, which has seen approximately 13,350 contracts trade. Nearly all of the positions have crossed at the ask price, and implied volatility has ticked 1.1 percentage points higher, indicating new positions are being bought to open. By initiating these long puts, traders expect GE to finish below the $21.75 mark (the strike minus the volume-weighted average price of $0.25), or 4.3% lower, by November expiration.

However, buy-to-open put activity has been on the upswing in the options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 132 puts for every 100 calls over the last 10 sessions. Meanwhile, during the past 50 sessions, speculators bought to open just 37 puts for every 100 calls. Additionally, this shorter-term put/call volume ratio ranks in the 98th percentile of its annual range, suggesting puts have been scooped up over calls at a near annual-high clip during the past two weeks.

This uptick in put volume precedes GE's impending earnings announcement, scheduled for release this Friday morning. The Dow darling has topped bottom-line estimates in three of its last four quarters. Plus, with the stock currently sporting a 26% year-to-date advance, the recent tendency toward puts may simply represent shareholders protecting profits against a potential earnings-induced pullback.

On a longer-term basis, GE has tacked on nearly 40% during the past 52 weeks. On the charts, the equity's 10-week moving average has ushered GE higher since mid-June. Additionally, the stock tagged a new four-year high of $23.18 on Oct. 5, which may have also prompted a bit of caution among investors.

No need for concern, today, though, with the stock following the broad market into the black. At last check, the equity was up 0.3% to hover near $22.69.

For GE's third quarter, analysts are calling for a per-share profit of 36 cents.


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