General Electric Company (GE) Call Options Pop Ahead of Earnings

As General Electric Company (NYSE:GE) prepares to deliver earnings tomorrow, call options are flying off the shelves

Oct 20, 2016 at 12:19 PM
facebook X logo linkedin

As earnings season continues, Dow stock General Electric Company (NYSE:GE) is set to step up to the earnings plate tomorrow morning. In addition, Goldman Sachs yesterday recommended purchasing long calls on GE, with the brokerage firm anticipating a post-earnings "relief rally" in the wake of GE's recent drop. It seems GE option players have taken this advice to heart, with calls flying across the tape.

So far today, GE has remained relatively flat, currently trading 0.1% lower at $29.02. For the year, however, GE has lost 6.7%, recently feeling downward pressure from its 20-day moving average. What's more, earlier this week, GE's 50-day moving average crossed below its 200-day moving average; this signal is known as the "death cross," and is usually viewed as a bearish sign for a stock.

In the option pits, however, today's traders are seemingly more optimistic. GE options are trading at twice their typical daily volume, with calls outpacing puts 48,000 to 38,000 contracts, respectively. Digging deeper, it looks like one trader may be rolling a position up and out, possibly selling to close the soon-to-expire October 29 calls, and buying to open the weekly 10/28 29.50-strike calls.

Widening the scope, the preference for calls isn't completely out of character for GE. Despite its technical weakness of late, the stock currently sports a 10-day call/put volume ratio of 1.72 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 85% of all other readings from the past year. It is possible that some of this call buying isn't just from "vanilla bulls," but could also be the result of short sellers hedging their bets, given GE's short interest is up over 25% in the last reporting period. It would take just under a week for traders to cover all of these shorted shares, at GE's average daily volume.

Whatever their motivation, option buyers seem to be getting quite a bargain on their bets. GE's Schaeffer's Volatility Index (SVI) of 17% sits lower than 79% of all other readings from the past 12 months, indicating near-term option traders are pricing in relatively muted volatility expectation. In the same vein, GE's Schaeffer's Volatility Scorecard (SVS) sits at a relatively elevated 86, indicating GE has tended to outperform volatility expectations over the past year.

So, what should traders expect from GE's earning report tomorrow? For the past eight quarters, the shares of General Electric Company (NYSE:GE) have averaged a single-session post-earnings swing of 1.4%, with the last three ending in negative territory. Currently, the options market is pricing in a single-day swing of 2.5% in either direction, based on implied volatility data. Whether that swing will live up to Goldman Sachs' "relief rally" prediction, or give short sellers what they're looking for, remains to be seen.

Find out where the Dow lands right after the closing bell. Sign up now for Schaeffer's Market Recap


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI