Every hedge fund is long their little portfolio of favorite stocks and short the market. For almost everyone, "short the market" means short S&P500 futures (NYSEARCA:SPY) (the ETF that represents the S&P 500). With a market cap of $386 billion and representing 2.9%, General Electric (NYSE:GE) ($37.29) is the second largest company in the index(.pdf) (#1 is Exxon (NYSE:XOM) ($83.62). So with nearly every hedgie operating in U.S. markets short GE, what do I want to do? OWN IT!
Last week I sold Jan 2008 37.50 strike puts on GE at $1.71 (-WGEMS - $1.91). The stock was trading at around $36.65 at the time. Yes, I know I should have logged the trade. But remember, as it says in the disclaimer "I do not log every trade."
So if you don't own at least 2% of your portfolio in GE, you're short it. I have to keep accumulating the stock. Selling the 37.50 puts is just part of that process that creates a break even price at under $36.00. I only see GE dropping if the market as a whole falls, and if that happens, I'm likely to sell some municipal bonds or treasuries, buy back the puts and buy GE directly.
My love affair and ongoing accumulation of GE is documented by hitting the ticker "GE" in the tag cloud.
General Electric, to big too be ignored from DavidNeubert.com.
Don't Try this at home disclaimer: I am an expert and options may be for me but they are probably not for you. You can lose way more than your entire investment playing in options. If you play too much in options you can even lose your home, mortgage and all. Now who would that be good for?
GE 1-yr chart