Market Overview

Mixed GE Options Trades Suggest The Rally May Soon Run Out Of Steam

Mixed GE Options Trades Suggest The Rally May Soon Run Out Of Steam

General Electric Company (NYSE: GE) capped off a good week with another gain Friday after a judge dismissed an accounting fraud lawsuit by a group of GE investors.

Several large GE option trades occurred Friday, and the mixed nature of the activity suggests traders still don’t know what to make of the struggling industrial giant.

The Trades

On Friday, Benzinga Pro subscribers received seven option alerts related to unusually large trades of GE options. Here are the four biggest:

At 10:17 a.m., a trader bought 1,948 GE put options with a $7 strike price expiring on Dec. 20 near the ask price at 39.1 cents. The trade represented a $76,166 bearish bet.

Less than 1 minute later, likely the same trader bought another 8,052 of the same December $7 puts, this time above the ask price at 39.2 cents. The trade represented a $315,638 bearish bet.

At 10:30 a.m., a trader bought 2,041 GE call options with an $8 strike price expiring Sept. 13 at the ask price of 41 cents. The trade represented an $83,681 bullish bet.

At 12:39 p.m., a trader bought another 1,413 of the same September $8 calls, this time near the ask price at 39.1 cents. The trade represented a $55,248 bullish bet.

Of the seven total large GE option trades Friday, three were calls purchased at or near the ask — trades typically seen as bullish. Three additional trades were calls sold at or near the bid or puts purchased at or near the ask — trades typically seen as bearish. One trade was executed at around the midpoint of the spread, which is typically considered neutral.

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, none of the trades were extremely large by institutional standards. Even the two trades at 10:17 combined represented less than a $400,000 position.

More Uncertainty Ahead?

GE’s stock was on the move on Friday after U.S. District Judge Jesse Furman dismissed a lawsuit by a number of pension funds that alleged that GE used fraudulent accounting to hide $424 billion in insurance liabilities.

Even the courtroom news was mixed, given that the judge also ruled that the investors can amend their complaint and refile the lawsuit again in the future.

Traders clearly still have mixed feelings about GE given that the large option trades on Friday were split evenly between bulls and bears. If anything, all the trades of near-term contracts expiring in September were bullish or neutral.

Trades of the December contracts were all bearish in nature, suggesting the current rally could continue through the end of next month, but may run out of steam heading into the end of the year.

GE shares were up 1.36% at $8.22 at the time of publication. 

Benzinga’s Take

GE has a lot of potential given its established position in the market and the aggressive turnaround plan enacted by management.

But while GE has made a lot of progress in selling off assets and shoring up its balance sheet, it still has a long way to go to prove it can consistently grow cash flow and earnings. Until that time, the stock will remain somewhat of a speculative play.

Do you agree with this take? Email with your thoughts.

Related Links:

Option Traders Making Large Bullish Bets On Facebook Following Recent Weakness

How To Read And Trade An Options Alert

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