Options Traders Are Bracing For the Worst Ahead of General Electric Earnings

Put open interest on GE is at its highest level since November 2015

Oct 19, 2017 at 2:33 PM
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Third-quarter earnings reports continue to flood in from Dow members like American Express Company (NYSE:AXP), which is trading lower this afternoon despite an earnings beat. Another handful of blue-chip companies are expected to release quarterly earnings next week, but first, traders will digest results from General Electric Company (NYSE:GE) tomorrow morning. Here's a closer look at GE ahead of earnings, and how options traders have been positioning themselves on the industrial shares.

Earnings History Isn't On GE's Side

General Electric stock has plummeted this year, down 25.1%, ranking it as the worst Dow stock of 2017. GE shares recently bottomed out at a two-year low of $22.83 last Thursday, and recent rebound attempts were thwarted by its 50-day moving average and the key $25.28 level, which represents an even 20% loss from GE's year-end 2016 close at $31.60. What's more, General Electric stock could extend its slide after earnings tomorrow, if past is precedent.

Historically, GE shares moved lower the day after the company's last seven reports, with an average post-earnings move of 1.8%, regardless of the direction. After earnings in July, the stock dropped 2.9% in one day. This time around, the options market is pricing in a bigger-than-usual one-day swing of 5.5%, per at-the-money implied volatility data.

GE Put Open Interest At Highest Point Since 2015

Short-term options traders are more put-heavy than usual ahead of the earnings event, as evidenced by the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.22 -- good enough to rank in the 92nd percentile of its annual range.

Total open interest on GE stock stands at 3,777,007 contracts, according to Trade Alert. More than 51% of those contracts are put options, marking the highest put open interest since November 2015, and the first time put open interest has exceeded call open interest since mid-January.

Peak front-month open interest of 113,889 contracts is found at the October 24 put. Data from major options exchanged confirms considerable buy-to-open activity here, indicating "vanilla" options players are betting the stock will fall even further below $24 after tomorrow's earnings.

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