Unusual Options Activity In General Electric

GE Capital, had its hands in a lot of stuff, from credit cards, to insurance, mortgages to airplane leasing. At its peak GE Capital accounted for almost 66% of GE's profits. But then the Great Recession came and GE Capital nearly crashed GE because it couldn’t get any financing and didn’t differentiate itself from other financial service companies.

However, in late 2018 GE started to get their legs underneath themselves as J.P. Morgan analyst and longtime GE bear Steve Tusa upgraded the struggling company’s stock. Despite the stock price rising 100% from the bottom, in early 2019, GE shares tumbled after the company said it sees “significant known headwinds to 2019 cash flow” for its industrial division, which was more negative than previous reported. Despite the bad press, price signaled a bottom and has been climbing ever since mid-2019.

Three months ago, shares of General Electric Co. climbed toward a more than one-year high after reporting profits, revenue and free cash flow that beat Wall Street expectations.

Chief Executive Larry Culp told Wall Street that he sees evidence of momentum and suggested the worst was behind the company.

Or was the worst just getting started?

Boeing recorded zero orders for the second time this year in April and customers canceled another 108 orders for the 737 MAX plane. Boeing CEO Dave Calhoun recently said doesn’t see demand for passenger airline travel to return to normal this year. Dave later stated that he expects a major airline to go out of business this year as a result of COVID-19.

What does any of this have to do with General Electric?

Shares of General Electric Co. GE, -3.50% tumbled 5.8% on heavy volume in afternoon trading Wednesday, putting them on track for a 29-year closing low, amid growing concerns over the troubled aerospace industry as the COVID-19 pandemic continues. Trading volume swelled to 149.2 million shares, to make GE's stock the most actively traded on the NYSE. The industrial conglomerate's stock is on track for the lowest close since December 1991. The stock's new low comes a day after Boeing Co. BA, -2.97% said on NBC's "Today" show that it was"most likely" that a major airline will go out of business this year, given the strain caused by the COVID-19 pandemic, and that it would take 3-to-5 years for the industry to recover to post-COVID-19 levels. A negative outlook from Warren Buffett earlier this month has also weighed on investor sentiment. That doesn't bode well for GE, which is among the largest jet engine makers. GE Aviation is GE's largest business segment.

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Because GE’s free cashflow come primarily from the Aviation Division, GE announced a 25% reduction in its international Aviation workforce by 25%, amounting in total to 13,000 jobs. But this isn’t going to get it done as there other businesses are struggling as well.

It's why the Smart Money thinks there is more downside risk in the stock price. Today, the Smart Money bought over 45,000 put options that expire in July at a strike price at $4.

This represent another 30% downside risk in two months. A close below the 2009 pivot low on the monthly chart and I don't see any reason why price won't continue to decline.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advice. Do your own research before making investment decisions.