Price action on blue-chip industrial conglomerate General Electric Company (NYSE:GE) has stalled out.
On one hand, the lack of action has been a boon for GE stock, as the shares haven’t any of the volatility or weakness plaguing the broader market.
On the other hand, GE shareholders have been left with no gains for the better part of the past month, creating a dead spot in many portfolios. However, there are ways to bank some profit on a stagnant stock, if you know the right options to play.
Before we get into the trading specifics for GE stock, let’s take a look at General Electric’s sentiment backdrop to see if there are any potential surprises that could pop up that could nudge the shares in one direction or another.
Starting with the brokerage community, we find a split decision. According to data from Zacks, GE stock has attracted six buy ratings, six hold ratings, and no sells. Meanwhile, the 12-month price target of $33.71 represents a modest premium of about 7.7% to GE’s current perch. There is room for upgrades and/or price-target increases here, but General Electric would need to provide some reasoning for such a move.
Elsewhere, short interest fell by 15% on GE stock during the most recent reporting period. While declining short interest in itself is not a bullish indicator, it could be a sign that short sellers are worried about a rally or are taking profits before the shares turn higher.
Click to Enlarge Options activity is also leaning bullish on GE stock. Currently, the September/October put/call open interest ratio rests at 0.76, with calls easily outnumbering puts among options set to expire within the next two months.
Overall, September 16 series implieds are pricing in more of the same for General Electric over the short term, with an expected move of only about 1.4% through the next two weeks. This places the upper bound at $$31.69, with the lower bound at $30.81.
2 Trades for GE Stock
Put Sell: One way to profit from stagnating stocks is to sell out-of-the-money puts. The downside being that you could be assigned the shares if the sold strike is breached, but, with GE’s recent lack of activity, the risk seems low. Traders looking for such a play on GE stock might want to consider a Sept $30 put sell position.
At last check, the $30 put was bid at 7 cents, or $7 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $30 when September options expire at the end of next week. The downside is that should General Electric trade below $30 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $30 per share.
Call Sell: Another way to profit from a stagnating stock, especially if it’s one of your portfolio holdings, is to sell out-of-the-money calls. For General Electric, traders might consider a Sept $32 strike call sell position. If you already own GE stock, this call sell allows you to offset some of your portfolio losses in the event of continued stagnation, but also allows you exposure to any upside up until the stock trades at or above $32.
At last check, this option was bid at 5 cents, or $5 per contract. A sold call allows you keep the premium as long as GE stock closes below $32 at expiration.
On the downside, if GE rallies above $32 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
