General Electric Company (GE) and the $6.5 Million Bullish Bet

General Electric Company (GE) was the target of a massive call spread

by Karee Venema

Published on Feb 27, 2015 at 1:51 PM
Updated on Jun 24, 2020 at 10:16 AM

To say call players are active in General Electric Company's (NYSE:GE) options pits today would be an understatement, with the contracts crossing the tape at a rate 12 times the intraday average. By the numbers, 349,000 calls have changed hands, compared to around 26,000 puts.

Drilling down, the majority of the day's action has centered on the January 2017 30- and 35-strike calls, where four blocks totaling 250,000 contracts changed hands shortly after the open. According to Trade-Alert, the lower-strike calls were bought, while the higher-strike calls were sold, as one speculator initiated a long call spread for an initial cash outlay of $6.5 million (125,000 contracts * $0.52 net debit * 100 shares per contract).

This is the most the speculator stands to lose, should GE settle south of $30 -- the bought strike -- at January 2017 options expiration. Meanwhile, although the trader's profit will begin to accrue on a move north of breakeven at $30.52 (bought strike + $0.52 net debit), it's capped at $4.48 (difference between the two strikes less the net debit) no matter how far north of $35 GE may climb, due to the sold 35-strike call.

This bullishly skewed activity marks a change of pace in GE's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.64 ranks in the 81st annual percentile, meaning puts have been bought to open over calls at an accelerated pace in recent months.

Technically speaking, General Electric Company (NYSE:GE) is poised to close out February with a respectable 9.5% gain. The stock is continuing this momentum today -- bucking the bearish footsteps of the broader equities market -- and was last seen up 1% at $26.17. Amid this uptrend, the security has regained its footing atop its 200-day moving average -- a trendline that has contained the majority of GE's advances since last July, suggesting a new layer of support may be forming.

Daily Chart of GE Since June 2014 With 200-Day Moving Average

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