GE calls are popular and affordably priced
On Monday, General Electric Company (NYSE:GE) was in focus for its heightened options activity. Today, the former Dow name is up 3.3% to trade at $11.33, after UBS raised its rating on GE to "buy" from "neutral," while hiking its price target to $14 from $11.50. The analyst in coverage thinks the increase cash flow will create a positive inflection point in 2020, while also fueling strong earnings growth.
UBS' new price target represents territory General Electric stock hasn't traded at since June 2018. But overall, GE capped off an outstanding run this year with a Nov. 25 annual high of $11.84. Even the subsequent pullback found support at the shares' 30-day moving average. And heading into today, the equity was sitting right at its 50% year-to-date mark.
You can forgive analysts for being skeptical, with the stock's recent five-year plight probably still fresh in their mind. Of the 12 brokerages covering GE, nine rate it a "hold" or "strong sell," while the consensus 12-month price target of $10.78 is a discount to last night's closing perch at $10.97. What this means is that any additional upgrades and/or price-target hikes could vault the security higher in the short term.
As alluded to on Monday, calls reign supreme. More specifically, 3.65 calls have been bought for every put on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the last 10 days. What's more, this ratio sits highest percentile of its annual range, suggesting this heavy preference for calls is unusual.
Now looks to be an affordable time to speculate on GE with options. This is per the equity's Schaeffer's Volatility Index (SVI) of 28%, which ranks in the 6th percentile of its annual range. This indicates that short-term options have priced in lower volatility expectations just 6% of the time in the last year.