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General Electric Co. (NYSE: GE) announced on Thursday evening that it would raise the pensions of more than 130,000 retired employees on December 1, with individual pensions rising by as much as 10 to 20 percent. A spokesperson estimated the total cost of this raise to be "hundreds of millions of dollars," but added that the increase has already been accounted for in GE's earnings. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on GE.After hitting a one-year low of $33.90 in March, the stock hit a one-year high of $42.15 in October. This morning, GE opened at $38.52. So far today the stock has hit a low of $38.25 and a high of $38.75. As of 11:05, GE is trading at $38.33, down 69 cents(-1.8%). The chart for GE looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $42.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 12.6% return in less than 3 months as long as GE is below $42.50 at January expiration. General Electric would have to rise by more than 11% before we would start to lose money.
GE hasn't been above $42.50 since 2001 and has shown resistance around $41 recently. This trade could be risky if the expected economic downturn doesn't materialize, but even if that happens, this position could be protected by strong resistance GE formed around $42, where the stock topped in October.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in GE.
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Reader Comments (Page 1 of 1)
11-10-2007 @ 3:27PM
dickenrose said...
Whoopee!!! I just got $48.81 per month more on my GE pension. Hope I can spend it all in one place!
11-12-2007 @ 7:53AM
Cheeted said...
Isn't time Lockheed Martin performed the same for it's retirees. Or does all it's government contracts with pension money built in prevent this. I applaud GE for there kindness.
11-12-2007 @ 11:36AM
jim atkinson said...
What level GE executive employees are excluded from the pension increase?Are they talking Senior Executives?There have been tons of Manager level jobs throughout the system.Are they eliminated from this benefit?
11-12-2007 @ 5:19PM
joseph houck said...
I would like to know when GE is going to buy back their stock as they have been talking about for
some time. This may give the market a more positive outlook towards the company.
I also appluad the company for increasing the pensioners salary. I have kept my stock since retiring in 2000 and now have approx 60% of what I thought was a good retirement.
11-14-2007 @ 10:49AM
Tattletale said...
Does anyone read this site?????? Not many.
11-14-2007 @ 12:14PM
Ralph Gates said...
Am I missing something? GE Pensions are paid out of The GE Pensioner's Trust Fund which is worth about 40-50 Billion dollars. This has nothing to do with GE stock. Corporate can not use this cash for anything but pensions. Am I wrong?
11-14-2007 @ 8:51PM
RES said...
I am a little puzzled. The article states, "with individual pensions rising by as much as 10 to 20 percent.'' Dickenrose is your $48.81 even close to 10% of your present monthly pension amount let alone the lofty 20%? I know my $48+ certainly is not even closeto 10%, but is approximately 4%. There figures are based on a formula when the pension began and on years of pension benefit service. But I wonder if anyone will be getting anything near 10 to 20 percent? Either the article is misleading or the formula is flawed.
However, $48.00 per month raise is nothing to sneeze at. I just hope that our insurance premiums do not rise so high as to take the full amount of the increase.
11-19-2007 @ 4:33PM
fcb said...
I am a lot more than just grateful for the pension increase. This has happened twice since I have retired, and I did not expect any increase. Thank you GE.