IBM Stock Reeling After Revenue Miss Yields Bear Note

The equity is carrying an 8.5% year-over-year deficit

Digital Content Manager
Jan 22, 2021 at 10:12 AM
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The shares of IBM (NYSE:IBM) are plummeting today, last seen down 9.7% at $118.92. The negative price action came despite the tech concern reporting better-than-expected fourth-quarter earnings of $2.07. However, the company missed Wall Street's revenue estimates due to the economic uncertainties of the coronavirus pandemic. In turn, the equity received a price-target cut from UBS to $122 from $125 this morning. 

The past year has not been kind to IBM stock. Though shares have risen somewhat from a March 23, 12-year low of $90.60, the security has been trading mostly sideways for the last several months. Overhead pressure at the $135 has kept a tight lid on gains, and the equity remains far away from its pre-pandemic levels near the $155 mark. Year-over-year, IBM is down 7.8%.

Analysts were mostly hesitant towards the security coming into today. Of the 10 in coverage, six carried a "tepid" hold rating, while four called it a "strong buy." Meanwhile, the stock's 12-month consensus target price of $138 is 4.8% premium to its current perch.

The options pits are overwhelmingly bullish, on the other hand. This is per the security's 50-day call/put volume ratio of 3.18 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 96% of readings from the past year. This means long calls have been picked up at a quicker-than-usual clip in the past 10 weeks.  

Drilling down to today's options activity, 43,000 calls and 30,000 puts have crossed the tape in just the first half hour of trading, which is 19 times the average intraday amount. Most popular is the monthly February 140 call, followed by the weekly 1/22 122-strike call, where new positions are being opened. Buyers of the latter are expecting to see more upside for IBM by the end of the day, when contracts expire.

Now seems like a great opportunity to take advantage of IBM's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 35% sits in the relatively low 24th percentile of its annual range, indicating options players are pricing in low volatility expectations at the moment.

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