Unusual Options Activity In GE – Part III

rollandthomas (74)in #investing • 5 years ago

I have already ran out of popcorn, but I got another bag in the microwave popping

because the GE drama continues. It was just yesterday I talked about more bearish unusual options activity,

Unusual Options Activity In GE – Part II

General Electric (GE) shares tumbled after the company said it sees “significant known headwinds to 2019 cash flow” for its industrial division, which was more negative than previous reported. The industrial free cash flow will now be in negative for 2019.

Today I noticed even more unusual bearish options activity. These options are even more aggressive than previously reported five days ago because the strike price is even lower, they expire in less than two weeks and the # of put purchased is 5X larger than the puts purchased that expire in April.

In order for these puts to be profitable, the stock price would have to drop about another 20%.

Today, the analyst who called the bottom in GE back in December is now calling for the stock to fall back down to $6.

Analysts said GE's Tuesday announcement of more coming financial woes in 2019 was worse than expected and the notion that the Power business is on the verge of amping back up is getting weaker.

JPMorgan’s Stephen Tusa told CNBC his $6 price target on GE now looks generous and that GE’s problems are worse than expected.

On the news, more than 800, 000 option contracts were traded yesterday. This is more than Apple and Facebook option contracts combined. Out of the 800, 000 options contracts, 60% were bearish contracts, meaning the overall theme is bearish.

On Fast Money yesterday, an analyst gave his view on things. He said, yes, the 200 moving average and yes, price filled the gap, but he thinks the 50 moving average will serve as support.

I’m sticking with what the chart is telling me. The chart suggests there are no buyers until the daily demand at $7.25. Thus, I anticipate price continue to decline from current levels.