General Electric's stock could still have room to slide.
The struggling industrial giant reported earnings above Wall Street's expectations on Tuesday, sparking a rally that sent its stock as much as 11% higher in after-hours trading. Shares continued their climb in Wednesday's session, rising as much as 2% to $10.37 per share.
But the options market told a different story, said Mike Khouw, co-founder and chief strategist at Optimize Advisors.
While GE was one of the top single-stock option trades in Tuesday's session, second only to Apple, and saw twice its average daily option volume, not all of the bets were bullish, Khouw said Tuesday on CNBC's "Options Action" segment.
"Despite ... what was widely viewed to be a better-than-expected result, the most active options were actually the June 9 puts. Over 36,000 of those traded in total, " he said. "That included a purchase of 33,600 of those for 19 cents, so somebody is making a bearish bet that this relief rally that we've seen in GE might be over within the next seven weeks or so, and that the stock could see a decline of about 13% from the levels where it closed today."
That would take the stock back below the $10 threshold to as low as $9 a share. But not everyone agrees that GE's future looks so grim.
"This is a balance sheet cleanup story," Seymour Asset Management founder and Chief Investment Officer Tim Seymour said on the segment. "To me, you're not playing it for [earnings per share], you're playing its sum of the parts. But it's a cleanup. Again, today's free cash flow outflow [was] 1.3 billion versus 4.3 expected. That, to me, is what this is all about, folks, and I stay long."
BKCM founder and CEO Brian Kelly also believes Wall Street sentiment was in GE's corner.
"Here's the important thing: Investors are actually starting to buy into the story. We've had this turnaround story for a long time. Investors didn't buy into it. So I think that's the big difference here," he said on the segment. "Actually, I'm with Tim on this one. I think you can hold this."
GE has climbed nearly 36% year to date after a crippling end to 2018. CEO Larry Culp, who took over in October, called 2019 a "reset year," forecasting annual performance in line with expectations.
Disclosure: Tim Seymour is long GE.