Weather Company Deal Crushes International Business Machines Corp. (IBM) Bears

International Business Machines Corp. (NYSE:IBM) has struck a deal with the Weather Company, and option bears are licking their wounds

by Josh Selway

Published on Oct 28, 2015 at 2:18 PM

A day after losing 4% in light of a Securities and Exchange Commission (SEC) investigationInternational Business Machines Corp. (NYSE:IBM) is moving to the upside. The stock has picked up 1.2% to trade at $139.53, on news the company has purchased the Weather Company's digital assets, such as weather.com -- but not its TV network, the Weather Channel. As such, it appears yesterday's option bears could be getting hit hard. 

More specifically, puts crossed at three times the normal pace on Tuesday, with traders taking a particular interest in the weekly 10/30 135 strike, where buy-to-open activity was detected. This means the speculators were betting on the shares to sink below $135 by week's end, when the weekly series expires. With today's gains, delta on the contract has slid to negative 0.11 from negative 0.26 at yesterday's close, meaning the chances of the option finishing in the money have greatly diminished. 

Today, the weekly 10/30 135-strike put is leading the way again, except now it looks like mostly sell-to-close activity. In other words, Tuesday's option bears are likely making a quick exit. 

Longer term, it's not unusual for short-term IBM speculators to target puts. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 1.02, higher than 95% of all readings from the past 52 weeks. In layman's terms, short-term speculators have been far more put-skewed than normal.

Elsewhere on the Street, brokerage firms have taken a decidedly pessimistic stance on Big Blue. Fifteen analysts currently cover the equity, 10 of which say it's a "hold" or worse. 

It's not hard to see where this skepticism comes from. International Business Machines Corp. (NYSE:IBM) has been moving lower since being rejected by its 320-day moving average in late July. In fact, the shares hit a five-year low of $137.33 yesterday, and now sit 13% below breakeven year-to-date. 


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