General Electric Company (GE) Puts Catch Fire After Earnings

General Electric Company (GE) stock is slipping after last night's earnings report

by Kirra Fedyszyn

Published on Oct 21, 2016 at 10:45 AM
Updated on Jun 24, 2020 at 10:16 AM

Dow components are taking center stage again this morning, after several of the large-cap companies reported their quarterly results. Among these is General Electric Company (NYSE:GE), which revealed earnings above analyst estimates, but lowered its full-year revenue outlook. As a result, the stock is down 2% to $28.48 this morning, likely putting some recent bullish traders on edge, and GE options are already flying across the tape.

Jumping right in, GE puts are changing hands at six times the expected intraday rate, with about 51,000 contracts traded so far -- outstripping call options by a nearly 4-to-1 margin. In fact, the intraday put/call volume ratio of 3.56 ranks in the 98th percentile of its 12-month range, and puts currently account for seven of the 10 most popular strikes.

Most active thus far is the October 29 put, where traders may now be closing in-the-money positions ahead of expiration at tonight's close. In fact, it looks like one trader may have closed his position at this strike, rolling it down and out to the weekly 10/28 28-strike put, expressing confidence GE will continue its post-earnings slide for another week. 

This put-heavy action is a rarity for GE, where options traders have lately been picking up long calls over puts at an unusually heavy rate. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.44 sits higher than three-fourths of all readings in the past year.

Outside of the options pits, however, pessimism has been building. Short interest on the equity saw a significant uptick in the most recent reporting period, and these bearish bets would take almost a full week to cover, at the stock's typical pace of trading. Of course, this rise in short interest also suggests that some recent call buyers could have been short sellers looking for a hedge against an upside surprise.

From a technical standpoint, GE hasn't been much to write home about lately. The shares have shed nearly 9% of their value in 2016, dropping off considerably since tapping an eight-year high in July. But if put buyers are looking for a slide below $28, they may be disappointed -- this level has been breached only once in the last 12 months, and served as support for General Electric Company (NYSE:GE) through January and into early February.

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