Why GE's put action is highly bullish
David Russell | [email protected]
An investor bought 10,000 January 25s for $0.38 and sold an equal number of January 2015 30 puts for $5, resulting in a net credit of $4.62. Volume was below open interest in the nearer-dated contracts, indicating that an existing short position was closed and rolled to the higher strike.
While selling puts is common, yesterday's activity was unusual because it used in-the-money contracts. Those track the share price more closely and are similar buying the stock. (See our Education section)
GE rose 1.82 percent to $26.90 yesterday and appears to be breaking long-term resistance from mid-2008. The put seller is now obligated to buy the stock for $30 through early 2015, but if it closes above that level, he or she will keep the credit as the options expire worthless.
The trader apparently sold the January 25s at an earlier expiration date based on a similar thesis and profited nicely as the industrial giant advanced.
A similar transaction appeared in energy-service stock Ensco on Oct. 16, which has rallied almost 9 percent in the meantime. Brazilian steel maker Gerdau followed on Oct. 30 and surged more than 10 percent in following sessions. International Game Technology, which saw outright put selling on Tuesday, popped more than 4 percent yesterday.
Disclosure: I own ESV shares.