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International Business Machines Corp. (NYSE:IBM - 200.15) has experienced a bout of positive price action since releasing a well-received earnings announcement in late January, and one group of speculators on Tuesday bet on this upside to continue in the near term. Of the 82,000 calls that crossed the tape (nearly quadrupling the average daily volume for call options), 3,516 did so at IBM's 2/8 205 strike. The majority of these went off at the ask price, implied volatility ticked 2 percentage points higher, and open interest rose overnight, pointing to the initiation of new bullish positions.
By buying these out-of-the-money calls to open for a volume-weighted average price (VWAP) of $0.15, traders need IBM to power above $205.15 (strike price plus the VWAP) by Friday's close, when these weekly options expire. This breakeven mark is a 2.5% premium to the equity's current price. At yesterday's close, delta at this call was perched at a low 12%, suggesting a roughly 1-in-10 chance this option will finish in the money by expiration.
This bullish behavior on Tuesday strays from the withstanding trend, as seen by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.86. Not only does this show that put open interest nearly doubles call open interest among options expiring in three months or less, but it ranks in the highest percentile of its annual range. In other words, short-term speculators are more put-heavy now than at any other time within the past year.
On the charts, IBM has advanced a modest 4.5% in 2013, with the lion's share of these gains coming on the heels of its fourth-quarter earnings report. The equity has now gained a foothold atop the round-number $200 mark, an area that previously served as resistance in mid-2012. This level will be tested as support in today's session, with IBM dropping 0.9% right out of the gate. At last check, the stock was hovering near $200.15.
Should the equity fail to muscle above $205.15 by the time the closing bell sounds on Friday, the most Tuesday's call buyers stand to lose is the initial premium paid.