Earlier in the week Bernstein’s industrial analyst Steve Winoker downgraded shares of General Electric (GE) from a buy to hold, largely on valuation. Listen to his explanation of the call to CNBC’s Carl Quintanilla from Monday morning:
It appears that the call has had an effect on the shares as they are down 3.3% on the week, vs the S&P 500 (SPX) and the Industrial sector etf (XLI) both down about 1% over the last 5 trading days.
The next identifiable catalyst will be Q1 earnings expected on Friday April 22nd prior to the open. The options market is implying about a 95 cent move between now and April 22nd’s close, or about 3%, with much of that likely the implied one day earnings move. Over the last 10 years the average one day earnings move has been a little less than 3%.
Today shortly before noon one trader appeared to make a near term bullish bet that the stock would be above $30.50 on April 29th at the close. When the stock was $30.84 a trader sold to open 25,000 of the April 29th weekly 30.50 puts at 40 cents. If the stock is $30.50 or higher on April 29th’s close, then the trader would receive the 40 cents premium or $1 million. The trader stands to be put 2.5 million shares of stock if the stock is $30.50 or lower, but would not experience losses until $30.10, the strike price less the premium received. I suspect the trader would be more inclined to cover the short puts below the break-even than be put the stock.
But that wasn’t all…..In the hour after this trade printed, there were sellers or other put strikes and expirations in GE, with 5,000 April 22nd weekly 30.50 puts sold to open at 34 cents, 5,000 more April 29th 30.50 puts sold to open at 42 cents and 3,000 of the Oct 29 puts sold to open at 1.06. In all put volume was more than 2x that of calls, with put volume 1.5x the average over the last month.
I suspect this trader thinks that earnings should be devoid of negative surprises, and that cheap options prices should get cheaper in the near term.
Taking a quick gander at the one year chart, $31.50 to $32, the breakout level from late March to the could serve as near term resistance:
