Options Bulls Blast GE Stock on Buffett Buzz

GE is the best Dow stock so far today, headed for its strongest day in two years

Mar 27, 2018 at 2:30 PM
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General Electric Company (NYSE:GE) hit an eight-year low of $12.73 on Monday, and was the only Dow stock to finish the session at a loss, and closed the day in oversold territory, based on its 14-day Relative Strength Index (RSI) of 28. Today, the shares are at the top of the Dow -- up 6% to trade at $13.67, on track for their best day since Aug. 10, 2015 -- after Bloomberg reported on rumors that Warren Buffett is considering taking a stake in GE. While the speculation is unconfirmed, options traders are betting on an even bigger bounce.

Most recently, roughly 350,000 GE calls have changed hands -- three times the expected intraday rate, and triple the number of puts traded. A number of GE options traders are taking an extremely short-term view of the stock's price action. The weekly 3/29 series accounts for five of the security's 10 most active options, with the majority of the activity centered at the 13.50- and 14-strike calls, and buy-to-open activity detected. These options expire at this Thursday's close.

However, the April 15 call is most active, with 46,463 contracts exchanged. Trade-Alert highlights a possible 20,000 contract block that may have been bought to open for $260,000 (number of contracts * $0.13 premium paid * 100 shares per contract). If this is the case, the speculator expects General Electric to rise above breakeven at $15.13 by the close on Friday, April 20, when front-month options expire.

It's getting pretty pricey to purchase standard April options, too. GE's 30-day at-the-money implied volatility is currently docked at 42.2% -- a new 52-week high -- suggesting extremely elevated volatility expectations are being priced into the front-month contracts.

Nevertheless, GE shares have consistently rewarded premium buyers over the past year. The stock's Schaeffer's Volatility Scorecard (SVS) of 90 indicates General Electric has tended to make outsized moves over the last 12 months, relative to what the options market has expected.

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