GE Options Pop as Stock Stays Hot

GE stock is pacing toward its best week in three years

Jun 27, 2018 at 11:29 AM
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General Electric Company (NYSE:GE) is trading in positive territory today, up 3.7% at $14.25, after Oppenheimer raised its rating on the stock to "perform" from "underperform." The brokerage firm waxed optimistic on yesterday's news that GE will spinoff its healthcare unit and dissolve its stake in oil name Baker Hughes (BHGE).

It's been a big week for GE stock, which is up more than 9% so far, and options trading has been heavy. Yesterday, the equity jumped 7.8% -- its best day since April 2015 -- on the portfolio news, marking a strong start to its first day as a non-Dow member in 110 years. Plus, options volume ran at three times the average daily pace, and the 14-strike was in focus.

While buy-to-open activity was detected at the weekly 6/29 14-strike call -- signaling expectations for a bigger rally through Friday's close -- a potential straddle was detected at the August 14 strike. If this is the case, the speculator expects GE to swing above the upper breakeven rail of $15.36 (strike plus $1.36 total premium paid for call and put) or below the lower breakeven rail of $12.64 (strike less premium paid).

Today, more than 183,000 calls have changed hands on GE, four times what's typically seen and volume pacing in the 98th annual percentile. Bullish bettors appear to be targeting the weekly 6/29 14-strike call again -- the most active option so far -- while new positions are also likely being purchased at the 14.50-strike call in the same series.

From a wider sentiment perspective, call buying has been picking up steam in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GE's 10-day call/put volume ratio of 3.01 ranks in the 89th annual percentile, meaning long calls have been initiated over puts at a faster-than-usual pace.

The good news for these options traders is that GE has consistently rewarded premium buyers over the past year. The former Dow stock's Schaeffer's Volatility Scorecard (SVS) reading of 85 (out of a possible 100) indicates it has tended to make outsized moves over the last 12 months, relative to what the options market has priced in.

 

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