Dow Stock in Oversold Territory Ahead of Earnings

GE has had a disappointing year, and options traders today are expecting more downside

Managing Editor
Jan 23, 2018 at 12:43 PM
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Global industrial concern General Electric Company (NYSE:GE) is slated to join the earnings scene, expected to report its fourth-quarter results tomorrow morning, before the market open. The Dow stock has had a more than disappointing start to 2018, last week suffering its worst week since 2009 amid breakup speculation. Below, we will take a look at how GE stock has performed on the charts, and how options traders are speculating ahead of tomorrow's report.

More specifically, General Electric stock has fallen more than 44% over the past 12 months, and touched a six-year low of $15.80 yesterday. Contrary to its long-term downtrend, GE stock was up 2.8% to trade at $16.62, at last check. However, considering the stock's 14-day Relative Strength Index (RSI) -- which closed at 27 last night, following a six-day losing streak -- GE has moved into oversold territory.

In terms of earnings reactions, GE stock has suffered negative one-day post-earnings moves in seven of the past eight quarters, with the exception of moving 1.1% higher this past October. The shares have averaged a post-earnings swing of 1.5% in either direction in the session after reporting. This time around, the options market is pricing in a larger-than-usual 4.6% move for Wednesday's trading, per at-the-money implied volatility data.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is showing GE with a 10-day call/put volume ratio of 2.16. This indicates that GE options buyers have picked up more than twice as many calls as puts during the past two weeks.

Today, however, General Electric put options are trading at twice the average intraday pace, with roughly 140,000 contracts exchanged so far. Most active is the weekly 1/26 16-strike put, which has seen more than 18,000 contracts traded. "Vanilla" buyers of the puts expect GE shares to retreat beneath $16 -- and deeper into new-low territory -- before the end of the week.


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