The set-up: General Electric (GE) is the stock everyone likes to hate right now. It has fallen 20 percent over the last few weeks, is off nearly 40 percent year-to-date, and is down to a six-year low; the new CEO’s plan to “transform” the company seems to have fallen flat, there have been layoffs, cutbacks, restructurings and more, most notably the enormous recent cut in the dividend.
The technical picture: The stock dipped under $18 and hit a low at $17.50, making it a good time for traders to get in on GE as an oversold, dead-cat bounce kind of play.
I think it will get bounce back to around $19 but probably not get past that level.
How I am playing it: There’s not enough room in this trade for me to play the stock, so I am using options, which I started buying on Wednesday. I picked up 200 Nov. 24 $18 call options contracts yesterday, and I am looking to buy more here on a dip.
I’m setting my stop-loss on this trade at a 50 percent loss on the options, which I picked up for 42 cents, while my target is a profit of 100 percent or more, which would be somewhere close to 90 cents. What that translates to in terms of the stock price depends on how fast the rebound happens, but it will be somewhere between $18.60 and $18.80, which I think is where the stock is headed in the next day or two.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs and large-cap stocks. At the time this article was published on RagingBull.com, he held 200 Nov. 24 $18 call options on GE, and was planning to expand his position as described here.