Traders Try to Catch a Falling Knife: Options Recap

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Someone’s trying to call a bottom in one of the market’s worst-performing stocks.

General Electric (GE) has lost more than half its value in the last two years, landing it at the bottom of the S&P 500’s rankings over that time frame. It would also be the top loser in the Dow Jones Industrial Average, if it hadn’t gotten thrown out in June.

But today an investor bet against the trend by selling 120,000 9-November 11.50 puts for $0.47. It’s the largest transaction for any stock in the entire options market so far.

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The high-risk strategy will profit from GE holding $11.50 or rebounding. If it does, the puts will expire worthless and the trader will keep the premium as profit. But if it breaks lower, he or she risks owning 12 million shares with downside risk all the way to zero.

Their cost basis, by the way, would be $11.03 because of the premium they took in. See our Knowledge Center for more on put selling.

GE fell 1 percent to $11.42 in morning trading and has tried to hold its ground at this level for the last four sessions. The company’s slide has resulted from worries about its balance sheet and weakness in its power-turbine business.

General Electric (GE) chart with 50-day moving average.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.