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Option Trader Makes $1M Bets The GE Rally Has Legs

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Option Trader Makes $1M Bets The GE Rally Has Legs

General Electric Company (NYSE: GE) are up 8% this week following the company’s better-than-expected fourth-quarter earnings report.

GE option traders have been active this week to position themselves after the big earnings report and market reaction, but two unusually large GE option trades stood out on Thursday morning.

The Trades

On Thursday, Benzinga Pro subscribers received 21 option alerts related to unusually large GE option trades. Two trades were by far the largest:

  • At 10:22 a.m. ET, a trader bought 10,000 GE call options with a $13 strike price expiring on Aug. 21. The contracts were purchased at the ask price of $1.111 and represented a $1.11 million bullish bet.
  • At 10:24 a.m. ET, a trader bought 5,000 GE call options with a $12 strike price expiring in January 2021. The contracts were purchased at the ask price of $1.99 and represented a $995,000 bullish bet.

Of the 21 total large GE option trades on Tuesday morning, 12 were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The remaining nine trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish.

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 and the timing of the two large GE option trades, there’s certainly a possibility they represent institutional hedging.

Room To Run For GE?

Since the earnings beat, GE has gotten a lot of love from Wall Street, including an upgrade from Bank of America. Analysts are particularly pleased that GE’s fourth-quarter industrial free cash flow numbers exceeded even the high end of its guidance range, and its industrial free cash flow outlook for 2020 was much better than analysts had anticipated.

Following this week’s run, GE shares are now up 47.6% in the past year, but GE bulls seem to believe the stock still has plenty of room to run.

Bullish sentiment among StockTwits messages mentioning GE spiked from 86.4% on Jan. 25 to as high as 94.2% on Wednesday, its highest level since Jan. 8.

 

Benzinga’s Take

The two largest option trades on Thursday are particularly good news for long-term GE investors because they aren’t just short-dated earning plays. The August calls suggest at least 11.4% more upside in the next seven months, and the January 2021 calls suggest at least 10.5% more upside in the next year or so.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

Related Links:

BofA Upgrades GE On 'Improving' Free Cash Flow Trajectory

How To Read And Trade An Options Alert

Photo credit: Momoneymoproblemz, Wikimedia Commons

 

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