Traders make in-the-money bearish bet.
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.
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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.
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.