Last Friday, conglomerate General Electric posted mixed Q4 results. Revenue missed already reduced estimates and the stock got punished. For investors looking for recovery and better times ahead, the current price of $30.37 could present a good opportunity. The shares also pay a quarterly dividend of $0.24.
GE could be an opportunity
Source: Saxo Bank
In order to allow for the market to come back and for the shares to recover, we will extend to the 17 March 17 expiration month. Since we expect the shares to get a lift over that timeframe, we will sell slightly out-of-the-money, e.g. a 31 strike price.
At the time of writing, the above contracts could be sold for $0.32 which reduces our cost basis in the stock down to $30.05. This will be our breakeven point, as well.
Finally we will have a number of opportunity to roll these calls out and therefore bring additional premium.
In case of an early assignment, the buyer of the calls will forgo their premium which will play to our benefit. We will provide a few updates.
Management and risk description
We are risking our initiation price of $30.05.
Underlying Price: $30.35
Status: Opening trade
Trade: Buy + Covered Call GE 100 17 MAR 17 31 CALL at $30.05*
Risk: $30.05 per 100 shares (slight reduction in risk due to the premium received)
Maximum gain at expiration or when called out: 3%
today as two orders (buy to open shares/sell to open call)
— Edited by Martin O'Rourke
Non-independent investment research disclaimer applies. Read more
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