General Electric (GE) stock is showing some relative strength in today’s trading session currently trading higher by $0.05 at $23.80 as the broader market drifts lower. The stock has been trading in a 52 week range of $19.87-$24.95 and has seen gains of nearly 13.40% year to date and 13.70% in the past 12 months.
GE has seen a flurry of unusual option activity in the weekly options expiring on August 30th. Yesterday a trader bought 7,500 of the GE Aug 30th 24 calls for $0.14. This represents a very short term bullish speculative trade in GE. In addition to this block, nearly 11,000 more have traded in today. Options sentiment on GE is currently neutral with current open interest put call ratio at 0.92. While these calls could be bought as short term protection against short stock position, the lack of catalysts contained in this expiration make it seem more likely this is a bullish bet rather than a hedge.
Unusual Option Activity:
We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. Analyzing unusual order flow gives traders a window into what the positions that large institutional players have.
Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock.
The “Institutional Trade”:
A trader bought 7,500 GE August 30th, Weekly, 24 Strike Calls for $.14
Their Risk: $14 per 1 lot
Their Reward: Unlimited Breakeven: $24.14
Cash Outlay: $105,000
The trader has the right, but not obligation to buy 750,000 Shares of GE at $24 between now and August 30, 2013