Tuesday, April 20, 2010

"Stellar First-Quarter Profits Drive Option Players to General Electric Company (GE)"

The stock closed down 53 cents on Friday and another 3 cents on Monday.
See post immediately above for some thoughts on a move toward large-caps.
From Schaeffer's Research:
Despite speculators' optimism, analysts remain lukewarm

On Friday, General Electric Company (GE) released its first-quarter earnings, boasting per-share profits of 21 cents -- 31% higher than the Street's prediction of 16 cents per share. In fact, while GE has bested consensus estimates in each of its last four earnings reports, Friday's per-share figures represent the largest margin by which GE has surpassed analyst estimates in the past year.

Following Friday's upbeat report, GE shares peaked at $19.45, driving option activity on the conglomerate to three times its usual volume. Specifically, 469,000 contracts crossed the tape on Friday. What's more, calls claimed 57% of this total volume, with roughly 269,000 contracts traded.

With Friday also marking April options expiration, option players flocked to the May series. The out-of-the-money May 21 call was most popular in this series, with 43,685 contracts traded. Over the weekend, open interest increased by 30,005, pointing to the addition of fresh call contracts. However, it appears that option players had differing reasons for placing their bets on this call, as 25% of these contracts traded at the bid, 26% traded at the ask, and the remaining 49% traded in between.

If these calls were bought to open, then bullish players are counting on GE to rise above $21 by May expiration. Conversely, if said calls were sold to open, then bears are betting on GE to remain below the $21 level by May expiration.

Technically speaking, GE has enjoyed a slow-and-steady ascent since July 2009, trending upward along the support of its 20-week and 32-week moving averages.

Weekly Chart of GE Since July 2009 With 20-Week and 32-Week Moving Averages

Furthermore, since the beginning of 2010, GE has moved sharply higher, adding nearly 25%. In fact, in the past 60 days, the equity has outperformed the broader S&P 500 Index (SPX) by nearly 11%....MORE