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Flood Of Unusual GE Call Buying Suggests Major Upside In The Next 6 Months

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Flood Of Unusual GE Call Buying Suggests Major Upside In The Next 6 Months

Shares of General Electric Company (NYSE: GE) traded lower Wednesday despite increasing concerns about the economic impact of a second wave of COVID-19 infections nationwide.

GE still has a long way to go in demonstrating it's back on the path for long-term cash flow and earnings growth. However, a flurry of large bullish option trades on Wednesday suggests there are some deep-pocketed investors who see significant upside for GE.

The GE Trades

On Wednesday, Benzinga Pro subscribers received 44 option alerts related to unusually large GE option trades. Here are a handful of the largest:

  • At 9:55 a.m. ET, a trader sold 2,615 GE call options with a $10 strike price expiring on Jan. 15, 2021. The contracts were sold near the bid price at 35.9 cents and represented a $93,878 bearish bet.
  • Less than a minute later, a trader bought 2,665 GE call options with a $10 strike price expiring on Jan. 15, 2021. The contracts were purchased near the ask price at 36.1 cents and represented a $96,206 bullish bet.
  • Within seconds, a trader bought 7,360 of the same GE call options with a $10 strike price expiring on Jan. 15, 2021. The contracts were purchased near the ask price at 36 cents and represented a $264,960 bullish bet.
  • At 9:57 a.m., a trader bought 33,823 of the same GE call options with a $10 strike price expiring on Jan. 15, 2021. The contracts were purchased near the ask price at 37 cents and represented a $1.25 million bullish bet.

Of the 44 total large GE option trades on Wednesday morning, 27 were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The other 17 were calls sold at the near the bid or puts purchased at or near the ask, trades typically seen as bearish. All three of the largest trades were bullish.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest GE option trades and their timing, there’s certainly a possibility they could be a hedge on a large position in GE stock.

Long-Term Bets On GE Rebound

A tremendous amount of Wednesday morning’s trading action in GE was for the same Jan. 2021 calls with $10 strike prices. From 9:51 to 10:20 a.m., there were 27 unusually large trades involving those same Jan. 2021 $10 call contracts. Based on an average trade price of around 36 cents, the break-even price for those call buyers is $10.36, suggesting about 45% upside for GE stock over the next six months.

Bank of America recently estimated GE will report negative $3.3 billion in Industrial free cash flow in the second quarter and negative $500 million for the full year. The company is expected to report second-quarter earnings on July 29.

 

Benzinga’s Take

Given all the GE investors have been through in recent years, the long-term call buyer might simply be betting that there’s not much GE can do or say at this point that will disappoint or drive away its remaining loyalists.

Any incrementally positive commentary at all from GE over the next six months may be good enough in itself to get the stock above the $10.36 break-even price for the Jan. calls.

Related Links:

Here's How Large Option Traders Are Playing Boeing As Order Backlog Shrinks

How To Read And Trade An Option Alert

Photo credit: Momoneymoproblemz, via Wikimedia Commons

 

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