Calls have been popular among short-term traders in General Electric Company's
(NYSE:GE) options pits of late. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR)
of 0.70 ranks higher than just 25% of other such readings taken over the year. This means that call open interest among options with a shelf-life of three months or less is heavier than usual, outnumbering put open interest by almost 3-to-2.
Following this trend, nearly 20,000 contracts crossed through GE's September 25 call yesterday for a volume-weighted average price (VWAP) of $0.39. The lion's share of the contracts -- including a block of 15,000 -- went off at the ask price, and open interest surged by 19,595 contracts overnight, suggesting the initiation of long calls.
In 2013, GE has climbed roughly 17% to its current trading level at $24.56. What's more, the stock reached a new four-year high of $24.95 on July 19, after an upbeat earnings report
earlier that day. With that being said, yesterday's call buyers anticipate GE will journey past the aforementioned high into territory untapped since October 2008. More specifically, they expect GE to topple the breakeven price of $25.39 (strike price plus the VWAP) by Sept. 20, when back-month options expire.
Should the stock remain below the 25 strike upon expiration, the most the call buyers risk losing is the initial premium paid, which is relatively low right now, considering the option's implied volatility of 16% sits 4 percentage points below GE's two-month historical volatility. Not to mention, GE's Schaeffer's Volatility Index (SVI) of 15% ranks above just 9% of all other annual readings, meaning the stock's short-term options are relatively cheap right now.
Outside the options pits, the brokerage bunch is bullish. From the 11 analysts weighing in, GE has received seven "buy" or better endorsements, compared to four "holds" and zero "sell" or worse ratings.
This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.
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