GE GE Aerospace

By Gunjan Banerji 

Options traders are betting on an explosive move in General Electric Co. shares after its earnings on Tuesday, a sign that turbulence in the battered stock may not be over.

Prices of options indicate expectations for about a 9% swing in the conglomerate's shares after first-quarter earnings are released, according to data provider Trade Alert. That is bigger than the average move of 4.7% that the stock posted after the past eight earnings releases. The forecast measures the size of the move, not the direction.

Potentially adding to GE investors' worries: Companies that have fallen short of Wall Street expectations this earnings season have seen their shares punished more than normal. While Boston-based GE's stock has rallied so far in 2019, it is still down 31% over the past year. The sharp decline has left the company's share price at $9.57 as of Friday, making it more likely the stock could see big percentage swings up and down.

Market participants have been buying GE put options ahead of its earnings, according to Ling Zhou, director of equity-derivatives strategy at Cowen Inc. Puts give the right to sell shares at a given price, known as a strike, later in time. These types of contracts can help investors protect against further losses in the stock. Mr. Zhou said GE options have also been used by the company's bondholders, who can take profits if the shares weaken.

Calls confer the right to buy stock. Market participants often tap options to make directional bets on stocks or hedge other parts of their portfolios.

The options activity is a sign of how GE's stock has evolved in recent years, from a steady dividend-paying company to one more prone to wild gyrations.

"On a normal trading day, it's two to three times as volatile as it used to be," Mr. Zhou said. Now, "the overall market view is that earnings will be more volatile."

GE's market capitalization has dropped by almost $200 billion since the end of 2016 -- to about $83 billion -- as investors have grown worried about the company's cash flow and billions of dollars of debt. Recently, company executives warned investors about another year of lower profits and poor cash flow from the company's core industrial operations. Last year, the company's stock was dropped from the Dow Jones Industrial Average after having a place on the blue-chip index for more than a century, while its bonds were downgraded by ratings firms.

To be sure, some options traders appeared to be wagering on a dramatic rebound in the shares. One of the biggest options positions outstanding would profit if the stock reaches $20 by January.

Meanwhile, a popular contract that traded on Thursday would pay out if GE shares climb to $20 by 2021, according to Trade Alert. Such a jump would mean a rally of at least 100% from the stock's price on Friday and bring the shares back to a level they were at in late 2017.

Analysts are closely watching for clues on what GE will do with its health-care business. GE has said it would sell assets to raise cash and recently agreed to sell its biotechnology business for $21 billion. The shares rallied 6.4% on news of the biotechnology sale, though they've fallen since then.

"There's still a bull case where you can see this as a $20 stock in 2020," said Deane Dray, an analyst at RBC Capital Markets. Mr. Dray has an outperform rating and a price target of $13 on the shares.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

April 28, 2019 08:14 ET (12:14 GMT)

GE Aerospace (NYSE:GE)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024

GE Aerospace (NYSE:GE)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024