PreMarket Prep Stock Of The Day: General Electric

No matter how skillful of a trader you are, there is always the element of good and bad luck.

When you have multiple positions both long and short in your overnight portfolio, you are bound to experience both scenarios.

Good luck is easy to deal with: book the profit and move on. When you have bad luck, you can lament over the misfortune, add to a loser or cover it and move on.

Co-host Dennis Dick had some extremely bad luck heading into Tuesday’s session. That being, he was short shares of General Electric Co. (NYSE: GE). How he dealt with the situation makes it the PreMarket Prep Stock of the Day.

Last-Minute Decision: In an attempt to balance out his holdings heading into the conclusion of after-hours trading on Monday evening, 3 minutes before the close, he shorted shares of General Electric.

The Bad Luck: Around 6:30 a.m. EST on Tuesday, the company announced its intention to split up the company and form three separate divisions. GE intends to combine Renewable Energy, Power and Digital Businesses before the spinoff and pursue a tax-free spinoff in early 2024.

This is the second attempt by the company to bolster its lagging share price. The first one was a reverse stock split (1 for 8) on July 30, with the only reason being to make its wildly underperforming share price more attractive.

At the onset, investors overwhelmingly approved the move, and its price rocketed from its closing price of $108.42 to $126.40 in less than 10 minutes on Tuesday. 

Should I Stay Or Go Now? Having confronted this scenario on multiple occasions over his more than 20-year trading career, Dick did what he always does: cover and move on. While it is very tempting to “add to a loser,” he chooses not to for two important reasons.

The first reason: that type of strategy can make a bad situation even worse. More importantly, if he adds to the position, it will require even more of his attention as he attempts to “babysit” it. 

Meanwhile, he may be missing out on other potentially profitable trading opportunities.

Regardless of what the issue does after the fact, he has no regret as handling the situation in this fashion has enabled him to have a long and profitable trading career.

The full discussion on General Electric from Tuesday’s show can found here:

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Mark on your calendar our last event of the year, which you do not want to miss — Introduction To Professional Trading #3 Order Execution. Details on the event will be posted later this week.

Public domain photo via Wikimedia.