The option screener has been showing high volume in the GE options this week. The monthly November 2015 options (11/20/2015) have over 1 million call contracts and 1 million put contracts. That appears to be a straddle. The option buyer appears to be looking for a big move in either direction.

It also means the option writer (the MM) has a large amount of money in play. Consider the following table of possible close prices on Friday 11/20.

The stock at the time of this article is $29.34. If the stock does not move between now and 11/20, that's a close at roughly $29.50. The MM will have to pay out $651+ million, or 265.85% more than they would if the stock closes at $35. #35 is the max point and represents the point where the option seller pays out the least amount.

A close at $32 means the MM pays out $432+ million or 142.83% more than a $35 close.

A close at $34.50, just 50 cents below the $35 close means the MM pays out $220+ million or 23.80% more. The difference between the $178 million and $220 million is $42 million.

strike
put OI
put cash
call OI
call cash
total cash
% diff
29.00
43,241
$666,390,650
19,755
$34,131,250
$700,521,900
293.23%
29.50
6,763
$610,389,600
8,960
$41,377,100
$651,766,700
265.86%
30.00
12,080
$554,726,700
78,879
$49,070,950
$603,797,650
238.93%
30.50
81
$499,667,800
13,991
$60,708,750
$560,376,550
214.56%
31.00
123
$444,612,950
2,607
$73,046,100
$517,659,050
190.58%
31.50
0
$389,564,250
1,859
$85,513,800
$475,078,050
166.68%
32.00
268
$334,515,550
1,157
$98,074,450
$432,590,000
142.83%
32.50
3
$279,480,250
0
$110,692,950
$390,173,200
119.02%
33.00
68
$224,445,100
55
$123,311,450
$347,756,550
95.21%
33.50
65
$169,413,350
0
$135,932,700
$305,346,050
71.40%
34.00
216
$114,384,850
0
$148,553,950
$262,938,800
47.60%
34.50
30
$59,367,150
0
$161,175,200
$220,542,350
23.80%
35.00
1,077,159
$4,350,950
1,077,878
$173,796,450
$178,147,400
0.00%
35.50
0
$3,192,700
0
$240,311,600
$243,504,300
36.69%
36.00
13,987
$2,034,450
13,987
$306,826,750
$308,861,200
73.37%
36.50
0
$1,575,550
0
$374,041,250
$375,616,800
110.85%
37.00
0
$1,116,650
0
$441,255,750
$442,372,400
148.32%
37.50
0
$657,750
0
$508,470,250
$509,128,000
185.79%
38.00
7,219
$198,850
7,200
$575,684,750
$575,883,600
223.26%

Clearly the MM is going to hold a position in the stock so that both the calls and puts are covered, and that he's protected from staggering changes in pay outs for a few cents difference in stock price. That will be an extremely large hedge position. In order to sell 1,077,878 covered calls, the MM needs 107 million shares of the stock. That's has much as the top mutual fund investing in GE. If all the stock were bought at the $29.34 price, thats 3.16 billion dollars. Keep in mind that MM also has to cover the puts he sold. That also affects the hedge position.

The MM will rebalance that position to remain as protected as possible. The result of trading that many shares should apply pressure to drive the stock price toward the max pain of $35.

Will it reach $35? Perhaps not, but there is a good chance of some rise in the stock price. 11/20 is a monthly expiration, and we can't expect max pain to really be a factor until 11/6 and after (assuming the open interest remains high). Also, GE stock has not been over $30 in more than a year.

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