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GE – General Electric - Implied volatility on GE has increased today from 110% to 124% as shares dropped like a stone to $7.61. In the middle of Friday trading the company reneged on its promise to maintain its dividend, citing the benefits of capital preservation. The market spent the rest of the afternoon digesting the news and investors even tried to push the stock higher feeling that this might even be read as a position of strength. After a weekend full of bleak economic and corporate news, investors are in no mood for buying the silver lining argument today. There was good two-way options activity in the puts reserving rights to sell shares at a fixed $7.50 before March expiration, where investors traded 13,000 contracts at an average premium of 70 cents. Buyers would start to feel protection at a breakeven price of $6.80. One investor sounded a more optimistic recovery note by selling the March/April calendar spread at the 10.0 strike. By selling 10,000 calls in March and buying the same amount in the April contract the investor is staking a claim in a rally in the stock over the next 46 days. The purpose of selling the March calls is to erode the total spread premium to 74 cents.
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