General Electric Company (GE) Stock Poised for Profits on Trump’s Trillion

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With a promised $1 trillion in infrastructure spending coming from President-elect Donald Trump, the industrial sector has been on fire since the Nov. 8 elections. And General Electric Company (NYSE:GE) has taken full advantage of this Trump bump, with GE stock rallying nearly 9% and taking out former technical resistance at $31.

And, with the shares not missing a beat following the Federal Reserve’s interest rate hike, there are more gains to come for General Electric — especially for GE options traders.

GE stock
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Before diving into the trades, we need to review the potential drivers going forward. The main technical driver is the $32 level.

When GE stock last breached this hurdle in July, the shares quickly surged toward $33 in less than a week. For options traders, this type of volatility on a normally tame stock is just what we’re looking for, and a breakout during the next couple of week’s could elicit the same technical reaction.

Meanwhile, on the sentiment front, there is plenty of potential sideline money and catalysts to help propel GE stock higher. For instance, Thomson/First Call reports that seven of the 16 analysts following GE stock still rate it a “hold” or worse.

The 12-month consensus price target of $33.86 represents a meager premium of only about 6% to General Electric’s current perch. Upgrades based on the incoming Trump administration or strong price action could bring additional buyers to the table.

Options activity, meanwhile, is also lagging behind GE stock’s performance. Specifically, the January 2017 put/call open interest ratio rests at a lofty 0.99, with calls and puts practically in parity with one another heading into the new year. This caution was warranted heading into the election and the Fed’s rate hike, but now that Wall Street has digested these events, and GE stock has moved higher, we should see an unwinding of this negativity, which could provide additional upside price support.

Overall, January 2017 implieds are pricing in a moderate move for General Electric stock of about 3.8% ahead of expiration. This places the upper bound at $33.22, with the lower bound at $30.78.

2 Trades for GE Stock

Call Spread: A breakout above $32 would be a major coup for GE stock bulls, and there are plenty of drivers to not only make this happen, but also push the shares toward another confrontation with $33. Traders looking to bet on just such a breakout might consider a Jan 2017 $32/$33 call spread. At last check, this spread was offered at 30 cents, or $30 per pair of contracts.

Breakeven lies at $32.30, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if General Electric stock closes at or above $33 when January options expire.

Put Sell: Selling premium amid elevated implieds is another way to play GE stock. While implieds aren’t excessively high, there is enough speculation here (and enough uncertainty about a sustained rally) to make selling GE puts worthwhile. As such, the Jan 2017 $30 put has solid potential on this front.

At last check, this option was bid at 15 cents, or $15 per contract. On the upside, you keep the premium received as long as GE stock closes above $30 when January options expire. On the downside, should GE trade below $30 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $30 per share — which may not be a bad thing, depending on your long-term outlook for General Electric.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/12/general-electric-company-ge-stock-trump/.

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