General Electric Bears Pay Up for Put Options After Earnings

GE bottomed at a nine-year low earlier

Oct 30, 2018 at 1:59 PM
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The shares of General Electric Company (NYSE:GE) are getting blasted today, after the industrial giant reported a third-quarter profit of 14 cents per share, which excluded a $631 million loss in its ailing power business and came in below the consensus estimate for adjusted per-share earnings of 20 cents. The company also cut its dividend to 1 cent per share, and said the Securities and Exchange Commission (SEC) had expanded their investigation of GE.

In reaction, GE stock is down 9.7% to trade at $10.08 -- fresh off a nine-year low of $9.98 -- pacing toward its biggest one-day loss since March 2009. The stock is now down roughly 43% year-to-date, with a rally attempt earlier this month quickly contained by the equity's 160-day moving average.

ge stock daily price chart on oct 30

GE options volume has exploded amid this volatile price action, with more than 780,000 puts and 321,000 calls on the tape so far. This is four times the average intraday amount and volume closing in on the annual high of 1.13 million GE options traded in a single session, hit back on Nov. 14.

The January 2019 9- and 11-strike puts are most active, with more than 400,000 total contracts traded. Trade-Alert indicates the liquidation of a potential put spread that was likely part of a longer-term roll. Elsewhere, speculators may be buying to open weekly 11/2 10.50-strike puts, and selling to open the November 10.50 put.

Today's accelerated put activity just echoes the broader trend seen at the major options exchanges in recent weeks. GE's 10-day put/call volume ratio of 0.77 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 94th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Those targeting short-term options are currently having to contend with relatively rich premiums, per GE's 30-day at-the-money implied volatility (IV) of 49.2% that ranks in the 98th percentile of its 12-month range. Meanwhile, the 30-day IV skew of 11.9% registers in the 80th annual percentile, indicating puts have rarely been more expensive than their call counterparts, from a volatility perspective.

 

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