The Dow dog that could be set to howl

Traders bet GE will rally 30%
Traders bet GE will rally 30%   

After a long spate of underperformance, General Electric could finally be set to rally, if some big options traders are right.

The stock fell 9 percent in 2014 even as the broader market surged, making it one of the worst Dow Jones industrial average stocks for the year (but not the absolute worst—that dubious distinction goes to IBM, which was the worst-performing Dow stock for the second year in a row).

It's done a bit better in the first two months of 2015—rising nearly 3 percent. But some options traders appear to think that the real rally is just getting started.

In a massive Friday trade, one trader (or firm, of course) bought 125,000 January 30/35 call spreads for about 50 cents per share. This is a $6.25 million bet that GE will rise about 35 percent, up to $35, by January 2017. And if it does, the trade will yield some $55 million in profit.

"This is more of a lottery ticket," Dan Nathan of RiskReversal.com said Friday on CNBC's "Options Action."

The trade was probably done "against a long stock position but someone who's already a big stockholder. If they get the move over this period of time, they're going to be very happy with that," Nathan said, in what might qualify as an understatement.

However, Nathan does not recommend that investors actually follow this trade, saying that shorter-dated options provide better opportunities.

For investor Brian Kelly, GE's recent (non-)performance sets up an interesting trade opportunity.

"If you look at GE's underperformance versus, let's say, the Nasdaq," going long GE against a Nasdaq short "might not be a bad pairs trade if you think the Nasdaq's going to come in and everybody's going to start piling into GE," Kelly said on "Options Action."

That would allow one to bet on GE and "take a little bit of your market risk out of it."


Follow the show on Twitter: @OptionsAction.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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