Option Traders Boost Bets GE to Drop 50% by Feb. 20 (Update1)
By Jeff Kearns
Jan. 20 (Bloomberg) -- Options traders increased bets that General Electric Co., which reports quarterly results this week, will tumble by half before next monthâs contracts expire.
About 56,000 GE puts traded when an investor used a âbutterflyâ spread strategy to wager that the stock will fall to $7.50 by Feb. 20, according to Andrew Wilkinson, the senior market analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc. GE, the finance and industrial company thatâs fallen 62 percent in the past year on the New York Stock Exchange, lost 7.4 percent to $12.93 in New York.
âThis investor is looking for a significant tumble in the share price over the next few weeks,â Wilkinson said. âItâs a big trade.â
About 28,000 February $7.50 puts were sold at around 10:28 a.m. in New York while about 14,000 February $10 puts and 14,000 February $5 puts were bought at the same time, according to data compiled by Bloomberg. Total GE put volume climbed to 254,809 contracts, more than triple the 20-day average and the most in two months. More than 1.5 puts traded for each call.
A âbutterflyâ spread strategy combines three options with the same expiration date and different strike prices, with half of the contracts bought or sold at the middle strike and the rest divided among the top and bottom.
Todayâs trade has the highest payout if GE shares close at $7.50 on Feb. 20. It profits if the stock falls to between approximately $5 and $10.
GE, scheduled to release fourth-quarter results on Jan. 23, will report net income of 37 cents a share, according to the average of eight analyst estimates in a Bloomberg survey.
GE said Oct. 10 that profit declined for a third straight quarter, reduced by lower earnings at its finance arm during the deepest U.S. financial crisis since the Great Depression.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: January 20, 2009 16:54 EST
By Jeff Kearns
Jan. 20 (Bloomberg) -- Options traders increased bets that General Electric Co., which reports quarterly results this week, will tumble by half before next monthâs contracts expire.
About 56,000 GE puts traded when an investor used a âbutterflyâ spread strategy to wager that the stock will fall to $7.50 by Feb. 20, according to Andrew Wilkinson, the senior market analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc. GE, the finance and industrial company thatâs fallen 62 percent in the past year on the New York Stock Exchange, lost 7.4 percent to $12.93 in New York.
âThis investor is looking for a significant tumble in the share price over the next few weeks,â Wilkinson said. âItâs a big trade.â
About 28,000 February $7.50 puts were sold at around 10:28 a.m. in New York while about 14,000 February $10 puts and 14,000 February $5 puts were bought at the same time, according to data compiled by Bloomberg. Total GE put volume climbed to 254,809 contracts, more than triple the 20-day average and the most in two months. More than 1.5 puts traded for each call.
A âbutterflyâ spread strategy combines three options with the same expiration date and different strike prices, with half of the contracts bought or sold at the middle strike and the rest divided among the top and bottom.
Todayâs trade has the highest payout if GE shares close at $7.50 on Feb. 20. It profits if the stock falls to between approximately $5 and $10.
GE, scheduled to release fourth-quarter results on Jan. 23, will report net income of 37 cents a share, according to the average of eight analyst estimates in a Bloomberg survey.
GE said Oct. 10 that profit declined for a third straight quarter, reduced by lower earnings at its finance arm during the deepest U.S. financial crisis since the Great Depression.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: January 20, 2009 16:54 EST
