DailyPlay – Opening Trade (GE) – January 2, 2024

GE Bearish Opening Trade Signal

View GE Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish Credit Spread

Details: Sell to Open 6 Contracts Feb 16th $130/$135 Call Vertical Spreads @ $1.89 Credit per contract.

Total Risk: This trade has a max risk of $1,866 (6 Contracts x $311) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $311 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is currently bullish but at an overbought condition.

1M/6M Trends: Bullish/Bullish

Relative Strength: 9/10

OptionsPlay Score: 103

Stop Loss: @ $3.78 Debit. (100% loss to the value of premium received)

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

The first trading day of 2024 looks like it may start off on a negative note with futures trading lower this morning. This comes after a very strong end to 2023 that saw equities rally significantly across the board. Market structure remains bullish, but the extended equity rally is at risk of a short-term retracement lower. Interest rates continue to act as the main theme, with investors now pricing in three rate cuts in 2024, however, this is still largely dependent on inflation and jobs/employment data with Nonfarm payrolls set to be released this Friday. 

Our bearish DailyPlay for today is General Electric (GE). GE has shown negative divergence with momentum indicators making lower lows while price continues to make higher highs – a strong bearish signal. While price structure is bullish, the daily timeframe indicates that the current rally is over-extended which provides an opportunity to fade GE and take advantage of the higher probability of a retracement lower. From a fundamental perspective, GE’s price/forward earnings ratio currently sits at 53.76, significantly higher than where the price/forward earnings ratio was between 16 and 27 over the last 5 years. 

We will look to Sell the Feb 16th $130/$135 Call Vertical @ $1.89 Credit. With a hypothetical portfolio of $100,000, we recommend risking 2% of the portfolio’s value to this trade, which is 6 Contracts for a risk of $1,866. We will set a stop loss on the put spread at around 100% loss to the value of the premium received @ $3.78 Debit. 

GE – Daily