General Electric (NYSE: GE - option chain) stock is trading lower today after the company reported earnings this morning, posting a third-quarter profit of $2.41 billion, or 23 cents per share, on revenue of $37.80 billion. This beat analysts' forecasts of 20 cents EPS but missed the consensus revenue number of $40.03 billion. 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.This morning, GE opened at $16.35. So far today the stock has hit a high of $16.41 and a low of $15.85. As of 11:30, GE is trading at $15.95, down 84 cents (-5.0%). The chart for GE looks neutral and S&P gives GE a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $18 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. For this particular trade, we will make a 7.1% return in two months as long as GE is below $18 at December expiration. GE would have to rise by more than 12% before we would start to lose money. Learn more about this type of trade here.
GE hasn't been above $18 at all since December 2008 and has shown resistance around $17.50 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish positions in GE.
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Reader Comments (Page 1 of 1)
10-21-2009 @ 1:04PM
charlie said...
A curse on GE and all that support our enemies..selling material that kills our service men and women.
I will not buy anything that is made by GE
I will discourage anyone from buying GE products
They have contributed to the death of American heros and the least we can do is not buy thier tainted products.
Major Charles McMasters (ret.)
10-22-2009 @ 3:35PM
Tim said...
Charlie,
Please elaborate on your comments of 10/21 about GE's selling material that is used against US forces. Thanks.