Bears Merciless Toward Ailing Blue Chip: Options Recap

Brown bear (Ursus arctos) roaring, side view

Disclosure: This article is intended for educational purposes only and should not be considered a recommendation. Options trading is not suitable for all investors.

The bears are still thirsty for blood in General Electric (GE).

Massive put volume was detected on Wednesday as the once-mighty industrial suffered its biggest drop of the decade. A large bearish roll dominated the order flow, and was the biggest options trade for any equity in the market all session:

  • 42,500 June 14 puts were sold for $0.29 toward the end of lunch. Volume was below open interest, which suggests an existing position was closed.
  • 42,500 July 14 puts were bought at the same second for $0.54 in a new opening transaction.
  • Puts fix the price where a stock can be sold, so they make money to the downside. Yesterday’s trader apparently profited from the shares dropping, so they sold their June contracts and rolled into a new position in July.
  • He or she paid out an additional $0.25 in the process and now has an additional month to ride further declines in the stock. See our Knowledge Center for more.

GE closed at $14.18, 7.26 percent in the red. Sellers hammered the stock after CEO John Flannery admitted earnings at its power business will remain flat through 2020. That was a blow to optimists betting on a rebound after the 126-year old company reported good earnings in April and monetized its railroad business earlier this week.

Almost 300,000 puts in total changed hands in GE yesterday, its highest total since the stock probed new multiyear lows in January. That was especially noteworthy because it comes at a time when put volume across the broader market has on the wane.

Bottom line: GE is among the worst-performing major stocks in the market, and yesterday options traders positioned for more weakness.

General Electric (GE) chart with put volume on GE and total put volume for whole market.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.