Unusual Options Activity in General Electric (GE)
Unusual Options Activity In General Electric (GE)
As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
General Electric (GE) is, of course, one of the largest companies in the world. The company is involved in everything from aircraft engine to financial services. Check here for more info on the company.
GE is up 3% on the year so far. The current share price of $25.99 is just 2% from the 52-week high of $26.60 and12% above the 52-week low of $23.19.
So what does unusual options activity in GE tell us?
GE isn’t in the financial headlines nearly as much as it used to be. So, sometimes investors forget it’s a company with $150 billion in sales and $15 billion in income. It’s also the 14th biggest public company in the US markets.
Lately, GE has been on a tear. It’s gone basically straight up in February, from $23.50 to $26. Clearly, the stock is benefiting from the overall rise in US equities. However, there’s been a ton of insider buying going on as well.
Here’s the deal…
Last Friday, nearly 100,000 call debit spreads traded in GE. Keep in mind, a debit spread is a call or put spread that results in a cash outflow when executed.
The call spread involved buying the January 2017 30 calls while simultaneously selling the 35 calls in the same month. The total cost of the call spread was $0.52 per spread for the call spread buyer. In other words, it cost $5.2 million to make this trade, which is also the maximum loss potential.
If you think about it, $5 million isn’t all that much to buy 100,000 call spreads just $4 out of the money – when they don’t expire until 2017! Not to mention, max gain on this trade is nearly $45 million! The breakeven point is $30.52.
Here’s the chart of GE:
As you can see from the chart, GE has soared higher since breaking through its 50-day moving average. Keep in mind, the breakeven point for the huge call spread isn’t even on the chart. However, we’re also talking about nearly two years until expiration.
Basically, someone is a long-term bull on GE. It doesn’t really matter all that much what GE does in the short-term for this particular trade. However, the investor obviously has faith in the company, and doesn’t expect a substantial pullback anytime soon.
More Options Trading Ideas…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Unusual Options Trading Activity
