Boring Is Ideal for General Electric Stock Traders

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GE stock - Boring Is Ideal for General Electric Stock Traders

Source: Jonathan Weiss / Shutterstock.com

Following earnings, General Electric (NYSE:GE) is bringing good things to life for bullish investors both off and on the price chart. But if you’re willing to play the long game in GE stock, this strategist still recommends using an intermediate-term, modified options spread in lieu of purchasing shares. Let me explain.

With shares of General Electric off about 4.50% in early Friday trade, nearsighted investors are treating GE stock like a dog still at risk of fleas.

But the industrial conglomerate’s latest earnings release should be bringing relief to existing shareholders and sparking interest from contrarian-minded investors as well.

In a nutshell, GE stock managed to top Street views by a penny in earning 19 cents a share on better-than-forecast sales of $30.1 billion compared to estimates of $29.4 billion. The power market remains a challenging one for GE. However, the company also continued to see strength across business units, spearheaded by aviation and healthcare.

GE also maintained its full-year profit forecast which some analysts saw at risk of being nudged lower. The company did trim its cash flow, but all told and as Deutsche Bank’s Nicole DeBlase noted, “this is a solid yet boring quarter from GE — but given the number of blow-ups seen over the past year, boring is a welcome outcome.”

General Electric Stock Monthly Chart

Source: Charts by TradingView

GE shareholders and contrarian-minded investors should also be finding relief on the price chart. Following a horrid 2017, pressure continued to hit shares in 2018’s early going. But as shown on the monthly chart of GE stock, over the past four months an oversold double-bottom pattern wedged in-between the 62% – 76% retracement levels has emerged.

Ideally, bullish investors could look to wait for GE stock to confirm June’s hammer candlestick by trading above $14.44. Of course, there’s no guarantees how and when that might occur. And given all that General Electric has been through these past couple years; buying on weakness today within the bullish pattern should bring good things to life for investors.

General Electric Bullish Modified Spread Combination

As much as this strategist likes GE stock as a contrarian play, bottom-line and with no guarantees from the wiggly lines of the price chart; a limited and reduced risk spread using GE’s options makes sense.

One favored spread combination that remains on our radar is using a credit put vertical spread to finance a well-placed, out-of-the-money long call butterfly. Specifically, selling the January $12/$11 put spread and buying the January $16/$19/$22 call butterfly still looks attractively-priced for 5 cents.

I detailed this options strategy and its mechanics in early June. Now and with GE stock removing a good deal of uncertainty off and on the price chart this moderately bullish position offers an even stronger margin of safety for the same low cost. Now that’s what I call bringing good things to life for GE investors!

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.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2018/07/boring-is-ideal-for-general-electric-stock-traders/.

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