Traders appear to believe shares of General Electric (GE) are poised to move higher by April. Yesterday we saw over 65k April 32 calls purchased in GE for $0.19. Open interest in General Electric at the time totaled less than 13k contracts so clearly this is a new position. Shares of GE closed yesterday at $30.00.
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How do traders profit from this long call options strategy on GE?
By purchasing the April 32 call options in General Electric for $0.19 traders are effectively betting that shares of GE will rise over 7% by April expiration. The Long call options lock in the price where investors can buy stock, allowing them to profit from a rally with limited capital at risk. The cheap cost ($0.19) can also generate significant leverage on a percentage basis if shares move in the right direction.
To make things clearer, if shares of GE are trading below $32 by April expiration (April 21), the trader who purchased the call options for $0.19 would simply lose his or hers initial investment of $0.19, which would be the maximum loss from the long call options strategy under any scenario.
However in the case shares of GE are trading above $32 by April expiration, traders would generate increasing profits. So say shares of GE are trading at $35 come April expiration, traders would profit roughly $3 or approximately a 1500% return on investment.
Long call options strategy on General Electric and the Boston Celtics?
Interesting to note General Electric announced yesterday that the Boston Celtics will add the GE logo to their uniforms starting next year. GE becomes just the third team to announce such a deal, joining the Sacramento Kings and Philadelphia 76ers.
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