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Bullish General Electric (GE) investor boosts put volume

By: Karla Yeh
Posted: 7/29/2010 2:09:00 PM
Referenced Stocks: GE

A couple of weeks after General Electric Co. (NYSE: GE ) announced worse-than-expected earnings, an investor boosted options volume in the name by selling a hefty number of longer-dated puts. The March 14 puts were active on the day Thursday as shares of the conglomerate name edged up on the day.

At 12:47 p.m. EDT, a block of 5,200 out-of-the-money (OTM) March 14 puts crossed the tape for 98 cents per contract. This price was the bid price when the volume hit the tape. Current open interest in this line is just 231 contracts, indicating the investor initiated the options action to open. The investor who sold this lot to open will keep the entire premium collected as the maximum profit if the stock is trading higher than the strike price at March options expiration. If the stock is trading between the strike price and the breakeven price of $13.02, the investor gives back some of the credit.

Once the stock drops below the breakeven price, the investor begins to lose money. If the stock continues to the downside and is trading at zero at expiration, the investor loses a maximum of $13.02 per contract. This trade is considered moderately bullish because the position allows for roughly 19% of downside before the investor begins to lose money.

A closer look at time and sales shows the investor traded this options action with a stock position, which turns this directional play into a delta-neutral volatility bet. However, this article highlights just the put volume on the tape.

GE shares gained five cents to $16.10 during afternoon despite the broad-market weakness so far on the day. On July 16, GE announced earnings of 30 cents per share and beat estimates by three cents. The stock dipped to a recent low of $13.97 at the beginning of the month, but has since gained roughly 15%. It looks like at least one investor expects the stock to hit a floor during the next several months and will be trading around its current level or higher at March expiration.