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Is General Electric Company (GE) Headed for a New Annual High?

GE option players scoop up March 23-strike calls as stock challenges new high

by 2/8/2013 9:47 AM
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Of particular interest in General Electric Company (NYSE:GE - 22.48) Thursday was a large block trade at the March 23 call, where 4,169 contracts traded in one fell swoop for the ask price of $0.15 per contract. This was -- by a hefty margin -- the largest block trading on GE yesterday, even as put volume exceeded call volume by roughly 35%.

Overall, this strike saw about 8,900 contracts cross, 79% of which traded at the ask price. As implied volatility ticked slightly higher -- and open interest rose overnight -- it is likely some of these options were purchased to open. The calls traded at a volume-weighted average price (VWAP) of $0.15, meaning breakeven at expiration is $23.15 (strike plus VWAP).

Option players may be viewing these calls as a good bargain. Implied volatility for the March 23-strike call is currently 12.2%, compared to 40-day historical volatility of 18.2%. In other words, the calls are priced south of market value, making them an attractive proposition for speculative traders.

Yesterday's preference for puts notwithstanding, calls have definitely been the favored choice among GE option traders in recent weeks. The 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 3.43, meaning nearly 3.5 calls have been bought to open for every put during the past 10 weeks. What's more, this ratio is higher than 86% of all readings taken during the last year.

Similar optimism is reflected in the stock's Schaeffer's put/call open interest ratio (SOIR), which weighs in at 0.63. Call open interest is nearly double put open interest, therefore, among options expiring in three months or fewer. Rarely has open interest been more slanted toward the call side; the SOIR is 5 percentage points above an annual low.

On the charts, meanwhile, GE has some work to do before living up to these optimists' expectations. While GE shares are up nearly 7% in 2013, they are approaching their annual high of $23.18, reached in early October. This could prove to be short-term resistance for the shares, which would not bode well for yesterday's call buyers, as it closely coincides with the breakeven point on this trade. On the plus side, all these option bulls have at risk is 100% of the modest premium paid.


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