From Barron's The Striking Price column:
Bullish options activity suggest that the stock can regain some of its former glory. Here are some ways to trade the industrial giant.
THE NEXT TWO WEEKS COULD determine if General Electric (ticker: GE) remains the world's most widely-held dead-money stock, or if the recent strength in the stock is the beginning of a vigorous era.
On Tuesday, GE Capital hosts a webcast to update investors, followed next Tuesday by GE's company-wide annual outlook for the entire company, all of which culminates January 21 with fourth-quarter earnings report. The GE Capital update is critical to the stock's trajectory as that business has driven corporate earnings in better times just as it has hung like a black cloud over the company since the credit crisis began in 2007.Also on Monday Goldman bumped their EPS estimate on the company while maintaining the Buy rec and $19 price target.
In the options market, GE's trading patterns have been bullish in the past week, suggesting that sophisticated investors expect the stock will advance following these updates. On Friday, for example, GE's January $19 calls experienced the largest increase in ownership, adding some 4,800 contracts. With GE's stock around $17, the interest in the January $19 calls suggesting investors expect the shares will extend the recent 9% gain during the past three months.
During the past week, call options have traded much more actively than puts, which suggests that investors are bullish. About seven calls have traded for each put, underscoring the hope that GE tells investors that GE Capital has resolved any lingering issues, and that the overall company is poised to deliver financial performance that will reward patient investors.
There is also chatter that GE, which currently pays out a 12 cent quarterly dividend, could soon increase it or at least signal when it might increase it.
Investors who are bullish on GE can consider buying a February $17 call for 58 cents with the stock at about $17. The implied volatility of the call is 24%, which is a one-year low. When trading options, volatility is critical because it heavily influences prices. High volatility means that the options already reflect the prospect that a stock will move, higher or lower, while low volatility signifies the absence of either robust bullishness or bearishness. Many seasoned investors buy options with low volatility and sell high volatility....MORE
On the day Jeff Immelt took over as CEO, September 10, 2001, the stock closed at (split-adjusted) $32.86.
There is some ground to be made up.