General Electric Company (NYSE:GE) continues to bring less than good things to life for bullish investors and this is supported by problems both off and on the GE stock price chart. But rather than a risky short in the stock, bears and bulls alike might be well-served by positioning with a long butterfly position instead.
As I wrote last month, General Electric stock has been the worst this year for investors. And conditions have yet to get better.
Shares of GE have continued to weaken and decouple from the broader market by shedding another couple percentage points versus the uniform gains in the major indices.
And according to JP Morgan and analyst Stephen Tusa, that’s not the worst of it. They forecast that General Electric’s weak free cash flow and business prospects mean the company will bump into into a ceiling — not a floor — at $24.
As such, it’s not a stretch to realize the industrial conglomerate blue-chip has been more of a dog with fleas in 2017 and it’s potential as a Dogs of the Dow candidate for 2018 is definitely questionable.
Ultimately, GE stock still doesn’t look like a worthy investment unless you’re a bear or maybe a bull first willing to bring good things to life with a clever play in the options market.
Let me explain:
GE Stock Weekly Chart
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Previously discussed key support from the 62% Fibonacci level has broken and that’s a big worry for this strategist. The next natural level of support after a minor 78% comes into play would be the 2015 flash crash low of $19.37.
In my view, the one support GE bulls have on the price chart right now is an oversold and divergent stochastics indicator on the weekly chart. But it’s simply not enough to get excited about: General Electric stock is a short until/if the stock can rally and close above $25.15.
If GE does manage to rally to get back thru $25.15, the price action will have reversed back above the 62%-level and confirm a bullish weekly candle low in the process. For us, that would be sufficient technical evidence to exit bearish positions and even consider the possibility General Electric is ready to bring good things to life for bullish investors.
GE Stock Long Put Butterfly
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As expressed, the trend remains friendly overall for investors taking short positions in General Electric stock. However, reviewing the options board, premiums have picked up and are currently trading slightly on the rich side. Therefore, a spread that reduces that exposure is preferred.
One favored spread with potential is the October $23 / $22 / $21 long put butterfly combination.
Priced for 7-cents, the spread offers a wide profit range from $21.08 to $22.92 with a max payout approaching 93-cents at expiration if GE stock finishes at $22 a share.
Of course, shares of General Electric do need to drop substantially from a current price of $24.26 in order for any profits to build by expiration. The range high sits more than 5% below Thursday’s close. The good news is if GE fails at bringing really good things to life for bears, only 0.30% of 1% is forfeited.
That’s a very small price to pay.
Furthermore, as discussed above, if GE stock actually improves its technical standing above $25.15, traders might consider buying shares. At that point and with a confirmed technical advantage for bulls, the very small premium paid of 7-cents on top of General Electric shares seems like an even smaller price to pay, all things considered.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
