General Electric Co. (GE)

Update 1/25/2022: I exited my short bear call options spread on GE 52 days before expiration, for a $1.25 debit per contract/share, a profit before fees of $93 per contract. Shares were trading at $89.19, down $4.87 from the entry level.

The Implied Volatility Rank at exit was 49.3%, down 6.6 points from the entry level.

The stock fell sharply after earnings were published, and I exited at 43% of maximum potential profit, well above my 25% goal for earnings plays.

Shares declined by 5.2% over one day for a 1,890% annual rate. The options position produced a 74.4% return for a 27,156% annual rate.

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I have entered a short bear all spread on GE, using options that trade for the last time 53 days hence, on March 18. The premium is a $2.18 credit per contract share and the stock at the time of entry was priced at $94.06.

The Implied Volatility Ratio stands at 55.9%

Premium:	$2.18	Expire OTM
GE-bear spread	Strike	Odds	Delta
Calls
Long	110.00	88.0%	16
Break-even	102.18	78.5%	26.5
Short	100.00	69.0%	37

The premium is 43% of the width of the positions short/long spread. The profit zone covers a 7.8% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 3.6:1, with maximum risk of $782 and maximum reward of $218 per contract.

How I chose the trade. The trade was placed to coincide with GE’s earnings announcement, before the opening bell on the day after. The short strikes were set to coincide with the expected move of $4.39 either way, based on options pricing, which gives a price range of $89.54 to 98.32. I chose a bearish position because recent analyst revisions have suggested the greater possibility of a negative earnings surprise.

By Tim Bovee, Portland, Oregon, January 24, 2022

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.