Illuminating Ideas for GE Earnings

• Posted by Greg Harmon
• on April 21st, 2016

General Electric, $GE, has been moving higher in steps for a long time. The last move up may have stalled short of the target to 34.25, but made a higher high at 32, extending the trend higher. The key to this stock has been if it is over the 20 day SMA it is trending higher and under it then it may fall back to the 200 day SMA or lower. Into earnings it is right at that 20 day SMA.

It has a RSI that is in the bullish zone, but turning lower while the MACD is level after resetting lower. The MACD may be avoiding a cross up though, a bad sign. The flat Bollinger Bands® give no insight into direction. Short interest for this behemoth is under 2%.

There is support lower at 30.55 and 30 followed by 29.20 and 28.50. There is resistance at 31.25 and 32. Above that you need to go back to 2001. The stock continues a long term breakout over 32. The reaction to the last 6 earnings reports has been a move of about 1.33% on average or $0.42 making for an expected range of 30.70 to 31.50.

The at-the money April 22 Expiry Straddles suggest a slightly larger 50 cent move by Expiry with Implied Volatility at 38% above the May at 15%. Open interest is biggest at 31 on the Call side, with some size above there at 31.5 and 32. On the Put side, the biggest open interest is at 31 as well but close at 29.5 with size at 30.5 too.

General Electric, ticker: $GE

Trade Idea 1: Buy the April 22 Expiry 31/31.5 Call Spread for 23 cents.

Trade Idea 2: Buy the April 22 Expiry 30.5/31 Call Spread (39 cents) and sell the April 22 Expiry 30.5 Put for $0.32.

Trade Idea 3: Buy the April 22 Expiry 31.5/31 1×2 Put Spread for $0.10.

Trade Idea 4: Buy the May 31/April 22 Expiry 31.5 Call Diagonal (50 cents) and sell the April 29 Expiry 31 Put for 18 cents.

Trade Idea 5: Sell the April 22 Expiry 31 Straddle for a $0.52 credit.

#1 gives the upside while #2 the upside deeper in the money, but with a possible entry to the stock at 30.5 Friday. #3 gives the downside with leverage and a possible entry at 30.5. #4 gives the upside longer term with leverage and a possible entry next week at 31. #5 is profitable on a close from 30.48 to 31.52 at Expiry, looking for a pin at 31. I prefer #4 or #5.

This is the exact type of analysis given to Premium Users on earnings trades every day.

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