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General Electric Options Traders Betting on a Bullish Jump


Dec. 16 2019, Updated 1:34 p.m. ET

In the December 13 trading session, General Electric (GE) stock closed trading at $11.34, down 0.87% from the previous session. This performance lagged the S&P 500’s (SPY) 0.01% increase on the day. The Dow Jones Industrial Average (DIA) surged 0.01% while the tech-heavy Nasdaq (QQQ) index gained 0.20%

General Electric stock has returned 0.2% over the past month, which shows that GE stock outperformed the US industrials industry. The industry returned -1.1% at the same time.

In late October, I looked at GE’s trends in Is GE Stock Overbought after Q3 Earnings? Since this article, GE stock has risen from $8.95 to $11.34 through December 13. This change represents an increase of about 26%.

There have been several bullish bets placed on General Electric stock, suggesting that it could surge higher in the coming weeks and months. So, I’d like to discuss the stock’s recent options trades and what they mean for investors. 

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9% move in General Electric stock

Looking at the January 17 options, I see a bid/ask for the $12.00 call option of $0.16/$0.17. Also, I see a bid/ask for the $12.00 put option of $0.78/$0.83. Keep in mind that the options strike is closest to the GE closing price of $11.34 as of Friday, 13. We can calculate the expected price move using the mid-prices of these options:

0.805 (12.00 put) + 0.165 (12.00 call) = 0.97/11.34 = 8.55%

As you can see, the options imply that GE stock could rise or fall by about 9% by the January expirations from the $12.00 strike price. This estimation uses the long straddle strategy. This assessment would place the stock in a trading range of $10.31–$12.36 by the expiration date.

Moreover, the calls at the $12.00 strike price outweigh the put options about 3:1 with 80,029 open calls to 33,116 open puts. Also, the calls at the $15.00 strike price significantly outweigh the put options, with 35,774 open calls to just 48 open puts.

A buyer of the $12 strike price calls would need the stock to rise to around $12.17 by the expiration date to break even. This imbalance suggests a more bullish market sentiment on General Electric stock.

GE options bulls

Traders from the options market made several huge bullish bets, suggesting that GE stock could rise in the coming months. The open interest levels for January 15, 2021, $15.00 calls increased significantly during Friday’s trading session.

According to Barchart.com, the open contracts increased by 75,342 contracts to about 130,322. The contracts traded at $0.57 on Friday. With that being said, the open interest represents a total dollar value of about $7.4 million. For the buyer of the $15.00 calls to earn a profit, General Electric stock would need to rise to around $15.57. That would be a gain of about 37.3% from today’s price.

Finally, the open interest levels for September 18, 2020, $8.00 puts increased during the last trading session. According to Barchart.com, the open contracts surged by about 8,000 contracts to about 8,085.

At first glance, this looks like a bearish bet. However, taking a closer look at the transaction price, we can see that the contracts traded on a bid side at $0.24 per contract. This means that the puts were sold. So, in order to collect an options premium for the options seller, the stock would need to float above $8.00 price level by its September expiration. 

Want to check out more technical analysis? Take a look at Is MSFT Overvalued? Technical Analysis Says YesDoes Disney Stock Have Room to Grow after Its Rally?, and Options Traders Think AT&T Stock Will Climb Higher.


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