Unusual Options Activity: General Electric (GE)

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  • Traders make in-the-money bearish bet.

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  • The March 20th 2020 $14 put options on General Electric (GE) saw a 12-fold rise in volume, going from 855 open contracts to just under 10,000 contracts.

    The trade, expiring in 72 days, is a bet on shares to decline. But with GE shares around $12, the option is $2 in-the-money, and should increase in value dollar-for-dollar with any decline in GE shares.

    The option trader paid $2.09, so the option has very little time premium in it.

    General Electric shares had a great year, with a 44 percent rally, with shares seeming to gain momentum in the past few weeks of trading as well. Insiders have turned bullish on shares in the past year as well.

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  • Action to take: Given that shares are in an uptrend right now, we’d prefer to hold off on buying options, even in-the-money ones, for the time being. While the trade could make a profit, there’s still strong bullish sentiment underlying shares.

    Traders may want to play that trend first before going short with a trade like the August 2020 $13 calls, trading for around $0.90, or $90 per contract. That’s a trade likely good for a 40-50 percent rally in the next few weeks if shares continue their uptrend.

    We expect more resistance and a bear move as shares get closer to $15.

    Investors missed the boat on GE shares in the past year, and should look for other opportunities in the industrial space that haven’t run up so much. A pullback in shares to under $10 would represent a decent entry point.

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