EOT Trade Alert – March 17, 2009

| March 17, 2009

March 17, 2009

Trade Alert:

   Buy GE June 2009 $11.00 CALLS at $1.15 or better (GEWFI)

Company Background:

General Electric (GE) really needs no introduction.  Officially, GE operates as a technology, media, and financial services company worldwide.  They’re the largest industrial company in America, and they compete in hundreds of industries.  They have more than 300,000 employees.  And here’s a fun fact, they’re the only company to have been a continuous member of the Dow Jones Industrial Average since its founding more than 100 years ago.

Short-Term Catalyst:

I’m not going to bore you today with tons of details.  GE as you know is an incredible company.  In full disclosure I actually own their stock.  I think this sell-off is way overdone.  GE has been trading below $10 for a few weeks now, and that is a huge discount to the breakup-value of the company.

We’re starting to see signs of life in the markets.  With any positive news, we could see investors flood back into the big cap stocks, especially GE.  If we can string together two or three weeks of an up market, we’re likely to see GE trade in the low to mid teens.

The options value on GE look way underpriced.  You’ll note the option I selected is priced very inexpensively.

On a technical basis, the view is just ugly.  But that’s good when we’re looking for a bounce.  The 50-day moving average is in a long downtrend, but the stock is about to trade above that level (a very positive sign).  The 5- and 20-day moving averages had an upside crossover just two days ago.  $10 is also a big psychological number in the markets.  I think it will provide a level of resistance, but once we get above it, $10 will act as a big level of support.

Trade Details:

Option Ticker Symbol: GEWFI
Underlying Stock Symbol: GE
Current Bid-Ask Price: $0.97 – $1.00
Option “Buy Up To” Price: $1.15
Break-Even On Stock At Expiration: $12.15
Maximum Risk Per Contract: $115

Exit Strategy:

GE is trading at $9.75 per share.  Resistance levels will be at $11 and again at $13.75. Remember we want this stock to move higher.  Support levels will be at $8.25 and $7. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: BST Trade Alert

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