It has been a rough year for General Electric Company (NYSE:GE). After surging into the end of 2016 on the wings of the Trump bump, GE stock has shed nearly 11% so far in 2017, pushed lower by a pair of back-to-back earnings misses.
Once a paragon of the buy-and-hold era due to its stable dividend yield, GE stock now finds itself in a state of flux, attempting to innovate and lead the industrial Internet of Things revolution.
But, according to recent analyst concerns, that yield and stability may now be at risk.
Last week, Deutsche Bank downgraded GE stock from “hold” to “sell.” It was just the latest in a string of downgrades from the analyst community. Deutsche Bank’s downgrade was different, however, as the brokerage firm called into question GE’s dividend. According to Deutsche Bank, GE would have to cut its dividend of 24 cents per share and lower its earnings guidance for the next few years.
Click to Enlarge Fallout from the move sent GE stock plunging to a fresh 52-week low near $27, as traders, already battered by earnings disappointments, fled the shares. It was at this point that technical buyers stepped in. GE stock was heavily oversold, and the shares proceed to recover just as quickly as they had declined.
It was a buying moment for GE stock, and that moment is not over quite yet, as the shares have reclaimed support at $28 and their 20-day moving average.
Sentiment remains somewhat shaky, but not as bad as Deutsche Bank is making things out to be. Currently, Thomson/First Call reports that 10 of the 16 analysts following GE stock rate the shares a “buy” or better. Furthermore, the 12-month price target of $32.29 represents a healthy premium of about 14.2% for GE stock.
GE options traders, meanwhile, remain largely on the fence when it comes to the stock’s prospects. Currently, the June put/call open interest ratio rests at 0.82, with calls only just outnumbering puts among options set to expire within the next month. That said, most of this OI rests north of $30, indicating that many of these contracts were likely opened before Deutsche Bank send GE stock reeling.
Overall, June implieds are pricing in a potential move of about 2.5% for GE stock ahead of expiration. This places the upper bound at $29, with the lower bound coming in near $27.50. This may seem like a tight trading range for GE stock, but implieds are well above historicals, indicating that volatility is elevated at the moment for the shares.
2 Trades for GE Stock
Put Sell: The safest route for profit from GE stock options is to sell out-of-the-money puts — especially with General Electric recovering from a heavily oversold position. Those looking to take advantage of near-term technical support might want to consider a June $27 put sell position. At last check, this put was bid at 17 cents, or $17 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $27 when June options expire. The downside is that should General Electric trade below $27 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $27 per share.
Call Spread: Those looking to bet on a continued oversold rebound for GE stock might want to consider a June $28.50/$29 bull call spread. At last check, this spread was offered at 13 cents, or $13 per pair of contracts. Breakeven lies at $28.63, while a maximum profit of 37 cents, or $37 per pair of contracts, is possible if GE stock closes at or above $29 when June options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
