On Friday, General Electric Company (NYSE:GE) joins the flood of blue chips stepping into the earnings limelight this week. Sure, GE stock doesn’t typically make the kind of moves that short-term options traders typically look for, but recent market volatility could help rectify that situation this time around.
GE has taken a bit of a hit lately. Analysts were expecting the company to benefit from increased infrastructure spending from the Trump administration. So far, however, those campaign promises are taking a backseat to rising political tensions in Russia and North Korea.
That said, while General Electric isn’t exactly a top-tier defense contractor, the company does have its hands in the industry and could benefit from a more combative stance from President Trump.
Returning to General Electric’s earnings outlook. The company is slated to slip into the earnings confessional this Friday, with analysts expecting GE to post a profit of 17 cents per share, down from 21 cents in the same quarter last year. Revenue is expected to decline 4.3% year-over-year to $26.41 billion.
Still, expectations could be a tad higher from many on Wall Street. According to EarningsWhispers.com, General Electric’s whisper number comes in a penny higher at 18 cents per share. GE has a history of topping analyst expectations, so a whisper number beat could well be in the cards.
Speaking of bullish expectations, Thomson/First Call reports that 11 of the 16 analysts following GE stock rate the shares a “buy” or better. However, the 12-month price target of $33.14 represents a modest premium of only 11.8% for GE stock, leaving some wiggle room for price-target upgrades in the wake of this Friday’s report.
Click to Enlarge Surprisingly, GE options traders may be the most bullish of the bunch. Specifically, the April/May put/call open interest ratio currently sits at 0.44, with calls more than doubling puts among near-term options.
What’s more, the April 21 put/call OI ratio has plunged to a near-term low of 0.3. In other words, calls more than triple puts among options most affected by GE’s earnings report this Friday.
Overall, April 21 implieds are pricing in a potential post earnings move of about 2% for GE stock. This places the upper bound at $30, with the lower bound coming in near $29.
Admittedly, this is a tight trading range for GE stock, but implieds are currently trading below historicals for the shares, meaning that a bigger than expected move could be in the cards.
If that move is to the upside, we could see GE top $31 by the time May options expire.
2 Trades for GE Stock
Call Spread: Those looking to bet on a bigger-than-expected upside move for GE stock might want to consider a May $30/$31 bull call spread.
At last check, this spread was offered at 29 cents, or $29 per pair of contracts. Breakeven lies at $30.29, while a maximum profit of 71 cents, or $71 per pair of contracts, is possible if GE stock closes at or above $31 when May options expire.
Put Sell: That said, General Electric stock could still remain pressured by broader market forces, leaving the shares rangebound for the short-term. Those looking to take advantage of near-term technical support for GE might want to consider a May $29 put sell position instead.
At last check, this put was bid at 33 cents, or $33 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $29 when May options expire. The downside is that should General Electric trade below $29 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $29 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
