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Option Bulls See More Upside for General Electric

GE hit a multi-year high today, thanks to a little help from analysts

by 9/14/2012 12:32 PM
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General Electric Company (NYSE:GE - 22.02) calls are flying off the shelves in today's session, with roughly 73,000 contracts crossing the tape at last check. This represents more than triple the typical intraday volume for call options.

Short-term speculators are showing a fondness for the September 22.50-strike call, which has seen 9,500 contracts cross the tape. A healthy portion of the volume is going off at the ask price, and open interest is currently made up of 375 contracts, making it safe to assume that some of today's call activity represents the initiation of new bullish positions.

By buying these calls to open for a volume-weighted average price (VWAP) of $0.07, speculators are betting on GE to finish the September options cycle above $22.57 (strike plus premium paid), representing a 2.5% premium to its current perch. Gains are theoretically unlimited with each step north of this mark GE takes through next Friday, when the options expire.

Expanding the scope, GE calls have been in fashion at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in recent months. Over the past 50 sessions, traders have bought to open 266 calls for every 100 puts. This ratio ranks higher than 81% of other such readings taken over the past 52 weeks, indicating bullish bets have been scooped up over bearish at an accelerated clip.

Echoing this trend toward calls is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.68, which ranks in the 8th percentile of its annual range. Simply put, near-term traders have been more call-heavy only 92% of the time within the last year.

Technically, GE has been nothing short of impressive, with the shares adding about 23% on a year-to-date basis. Lately, the stock's advance has been analyst induced, with bullish notes from the brokerage bunch pushing GE to multi-year highs. In fact, the equity tagged a near four-year high of $22.37 in today's session, after BofA-Merrill Lynch resumed its "buy" rating.

Going forward, a fresh round of upgrades and/or price-target hikes could only assist the stock in its trek higher. With four out of 10 analysts still maintaining a tepid "hold" recommendation, and the consensus 12-month price target of $23.38 just a stone's throw from today's technical milestone, it seems the door could be wide open for more bears to change their tune.


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