Option Traders Boost Bets GE to Drop 50% by Feb. 20 (Update1)

Discussion in 'Wall St. News' started by patchie, Feb 20, 2009.

  1. patchie


    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 month’s contracts expire.

    About 56,000 GE puts traded when an investor used a “butterfly” 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 that’s fallen 62 percent in the past year on the New York Stock Exchange, lost 7.4 percent to $12.93 in New York.

    “This investor is looking for a significant tumble in the share price over the next few weeks,” Wilkinson said. “It’s a big trade.”
    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 “butterfly” 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.

    Today’s 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
  2. patchie


    This article was published late January. GE had never dipped below $10.00 before yesterday with tremendous put volume at $10.00/share. Today it has never broken $10.00 and will stay below thru the close as the investor that placed this bet is making sure it comes true.

    You have to wonder, when does this become price manipulation?
  3. 1) When? Never. If you believe in "price manipulation", you're at the wrong website.
    2) The next expected downside will be $5/share. Many institutional investors have to sell-out of stocks that get below $10/share. $5/share is the other "legal" sell-stop level.
    3) It'll be interesting to see if the ratings agencies come under "pressure" to downgrade GE.
    4) $10/share should be impenetrable resistance. We'll see. :cool:
  4. +1
  5. People talk this trash, but it makes no sense.

    How many shares do you think this guy can afford to short to 'make it come true'? And what happens if GE lifts and he has to cover those shorts?

    Show me the math . It sounds like bullshit to me. Like most of what we hear and read.
  6. I watched GE today, Rimm as well: usually options expiration work is done on thursday, but today was quite interesting as many "interests" were at play trying to square up their portfolios.

    I bet GE climbs hard next week--next three weeks in fact.

    It is a group of players attacking same stock, capital is spread out among players, capital isn`t the issue preventing this attack.

    What is interesting is several different strategies by the players involved on the same stock.

    All in all, that was a poor trade though from a use of capital perspective.
  7. A $14k lot fly at $.20 is a $280,000 debit. Not exactly a large institutional trade.