Option bulls set their sights on
General Electric Company
yesterday, as roughly 65,000 calls were exchanged during the course
of the session. This was nearly double the equity's average daily
call volume, and almost four times the number of puts traded.
Taking a closer look at the data, it appears one group of
speculators is wagering that the stock will trek higher within the
next few months.
To be more specific, north of 28,300 contracts crossed at the
December 25 call, which was by far the most active strike of the
day. A hefty portion of the volume changed hands in one large block
of 25,000 calls for an ask price of $0.37 each, suggesting they
were purchased. Meanwhile, open interest surged by 25,748 contracts
overnight, confirming the addition of new long positions.
By purchasing the calls to open, the trader is expecting GE to
ascend past the breakeven rail of $25.37 (strike price plus the net
debit) by December expiration. This denotes a premium of 5.7% to
the stock's current price at $24.01, as well as territory not
conquered since October 2008. The delta for this option stands at
0.30, implying it has a nearly 1-in-3 chance of moving into the
money ahead of the close on December 20. Still, should the shares
remain south of the strike price throughout the option's lifetime
-- which encompasses the company's quarterly earnings report on
October 18 -- the most Wednesday's bull stands to lose is the
initial premium paid.
From a technical perspective, General Electric Company has advanced
more than 14% so far this year, underperforming the broader
S&P 500 Index
(INDEXSP:.INX) on a relative-strength basis. Still, the stock's
recent pullback was contained by its 40-week moving average, which
has served primarily as support since December 2011.
This article by
was originally published on
Schaeffer's Investment Research
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