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Pessimism Piling Up on General Electric Company (GE)

GE's May 23 put is popular among today's options traders

by 5/9/2013 12:00 PM
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General Electric Company (NYSE:GE) is attracting some bearish attention today in the option pits, with intraday put volume outpacing call volume by over 45%. The option in the spotlight this morning has been the May 23 put, where 5,303 contracts have crossed the tape on a series of mid-sized blocks (i.e., 100- to 600-contract trades). Close to 100% of these puts have occurred at the ask price, implying that the options may have been bought to open.

The volume-weighted average price (VWAP) for the puts is $0.30. Accordingly, today's pessimistic buyers stand to profit in the event that the shares of GE descend past $22.70 (strike price minus VWAP) prior to May 17, when front-month options expire.

So far in morning trading, the stock has shed $0.17 to sit at $22.84, meaning that while the options are in the money, they are not yet profitable. Should General Electric fail to slip past the breakeven point prior to contract expiration, however, the most the traders could lose is the initial net debit paid. It should be pointed out, too, that this premium is actually priced at a discount -- relatively speaking -- since implied volatility (IV) for May options is currently 15%, compared to one-month historical volatility (HV) of 24.8%.

Yesterday's call activity notwithstanding, puts have been popular on GE among options traders lately. The International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 10-day put/call volume ratio for the stock comes in at 0.53, or in the 70th percentile of its annual range. To express the situation more clearly, puts are being bought to open over calls at a faster-than-usual clip.

General Electric Company (NYSE:GE) has struggled on the technical front, as well. The shares, which have added about 9% year-to-date, have trailed the S&P 500 Index (SPX) by nearly 7 percentage points over the past two months. Moreover, GE is on a collision course with its descending 10-week moving average. Should that trendline prove to be a layer of resistance, it would be to the delight of today's bears.


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