General Electric Options Bear Lowers the Bar

Put open interest is at a 12-month peak on General Electric

Oct 10, 2017 at 3:18 PM
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Shares of General Electric Company (NYSE:GE) tumbled to $23.25 on Monday -- their lowest level in two years -- following news of a massive executive shake-up. And while GE is up 0.4% today to trade at $23.52, one options trader seems to think this is a "dead-cat bounce," and is betting on even lower lows for the Dow stock through year's end.

At last check, more than 89,000 puts have traded on GE so far -- two times what's typically seen at this point in the day, and volume pacing in the 99th annual percentile. As a point of comparison, around 72,400 calls have changed hands.

Most notable, according to Trade-Alert, is a possible bearish roll out and down, with one trader apparently selling to close 15,804 October 23 puts and buying to open 22,053 December 21 puts. If this is the case, the speculator expects GE shares to sink below $21 by expiration at the close on Friday, Dec. 15, when the series expires, a level not breached since August 2015.

Puts, in general, have been in high demand on General Electric -- which shouldn't be too surprising, considering it's the worst Dow stock so far in 2017, based on its 25.5% year-to-date loss. In fact, put open interest of 1.57 million contracts is at a 52-week high (though, it should be mentioned that call open interest is also at a 12-month peak, with 1.63 million contracts outstanding).

And while short-term volatility expectations are high ahead of the company's Oct. 20 earnings report, puts remain reasonably priced relative to their call counterparts. Specifically, the stock's 30-day at-the-money implied volatility (IV) of 22.5% ranks higher than 99% of all comparable readings taken in the past year, meaning premium is more expensive than usual. However, GE's 30-day IV skew of 8.8% sits in the low 8th annual percentile.


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