General Electric Stock Call Options Popular Ahead of Earnings

General Electric shares have historically struggled after earnings, but options traders don't mind

Jul 20, 2017 at 3:39 PM
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Options trading has been brisk on General Electric Company (NYSE:GE) in the lead-up to the industrial conglomerate's second-quarter earnings report, due out ahead of tomorrow's open. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the Dow stock has seen some of the heaviest options volume over the past 10 sessions, with 513,807 calls and 299,264 puts traded. 

Most active over this time frame has been the August 28 call, where 95,446 contracts were traded -- the bulk of which were bought to open, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, options traders are betting on GE stock trading back above $28 by the close on Friday, Aug. 18, when the soon-to-be front-month options expire.

Traders looking to capitalize on a more immediate post-earnings move have set their sights on several July-dated strikes, which expire at tomorrow's close. On Tuesday, it looks like one trader may have initiated a long calendar spread using the July 27 and weekly 7/28 27-strike calls -- expecting GE to remain at or below $27 through tomorrow's trading, then stage a breakout by next Friday's close, when the weekly options expire. Elsewhere, significant buy-to-open activity has been detected at the July 27.50 call in recent weeks, while new positions are possibly being purchased at the July 26.50 call today.

At last check, General Electric shares were trading down 0.7% at $26.76. This negative price action is nothing new, with the security down 15.4% in 2017, second only to Verizon in terms of the worst Dow stock of the year. Several of GE's breakout attempts have been quickly contained by its 80-day moving average -- including one in mid-June following news of CEO Jeff Immelt's departure. More recently, the 20-day trendline has stalled the security's bounce off its July 10 21-month low of $25.85.

GE shares could be poised to extend these losses tomorrow, if history is any guide. The stock has closed lower in the session subsequent to reporting in each of the past six quarters, averaging a loss of 1.4%. This time around the options market is pricing in a 4.1% swing for General Electric stock, regardless of direction.

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