A buy-write is generally considered to buy a mildly bullish trade. The trader doesn't thing the stock is going to go down, or is going to slowly rally to the strike price sold. In this case, the trader was thinking GE was going to run to close to 21.00 a share. Now, one of the problems with being GE is that when the market drops, so does GE. It is one of the most correlated stocks to the S&P 500 because the company encompasses about everything: industrial, finance, consumer...you name it.
Let's review the T3/OP video with Jill and Scott for more on the fundamentals and technicals on GE:
While the market has sold off some, and truthfully I think might test 1350, I think that GE is going to follow the path that Alcoa (AA) set on Tuesday. It is going to be a positive earnings surprise and get a nice pop higher. Earnings are on Friday April 20th, not exactly the easiest day to play earnings. The good news is that I don't think anyone is expecting this stock to blow things out of the water. I think a small bullish play makes a ton of sense.
To make matters better, we have gotten a nice IV pop. While our buy-writer at the top may have gotten beat so far, I think he is probably write, GE is heading for a nice slow rally. With the aforementioned vol pop I think a may put spread makes a lot of sense. Lets sell a GE May 18/19 put spread and collect about $0.33. It's a pretty simple, easy and should be a nice winner in short order after earnings. We will buy it back for $0.10.
Trades: Sell to open GE May 19 puts at $0.56 and buy to open GE May 18 puts for $0.33.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits.
Mark can be followed on Twitter at twitter.com/OptionPit.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV