IBM Earnings Reaction Sparks Heavy Options Trading

IBM options traders are betting on a quick bounce

Apr 18, 2018 at 10:45 AM
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IBM (NYSE:IBM) last night reported a first-quarter profit of $2.45 per share, excluding items, on $19.07 billion in revenue -- more than analysts were expecting. However, Big Blue said its adjusted gross margin dropped to 43.7% and it expects full-year adjusted earnings of at least $13.80, both below forecasts.

As a result, the shares were hit with price-target cuts at Barclays (to $188) and Independent Research (to $175), while Wedbush called the earnings "low quality," and said IBM is a "work in progress." At last check, the stock has plunged 6.4% to trade at $150.57 -- dragging the Dow into the red.

The shares are now trading below their year-to-date breakeven level, and their 200-day moving average -- both of which have worked as a magnet for IBM since the broader stock market correction took its toll in early February. Year-over-year, the Dow stock has given back 11.5%.

And as IBM stock sells off after earnings, options volume has exploded. Most recently, around 41,500 calls and 25,000 puts have changed hands -- nearly 11 times what's typically seen at this point in the day, and volume pacing in the 100th annual percentile.

Buy-to-open activity has been detected at the April 152.50 call, the most active option so far, signaling expectations for a quick end-of-week rebound. If this is the case, breakeven for the call buyers at this Friday's close is $153.23 (strike plus the volume-weighted average price of $0.73).

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