International Business Machines Corp. (IBM) Buzz Brings Out Option Bulls

A glowing note from Morgan Stanley and a $2.6 billion purchase has International Business Machines Corp. (NYSE:IBM) atop the Dow

Feb 18, 2016 at 11:41 AM
facebook X logo linkedin

Big Blue's having a big day, as tech firm International Business Machines Corp. (NYSE:IBM) has jumped to a 5.3% lead to hit $132.77, making it by far the best performing Dow component so far today. Option traders are wasting little time. Call volume is on pace to notch an annual high by day's end, with the contracts crossing at seven times the average intraday clip. In fact, eight of the top 10 most popular strikes are calls, and it appears option traders are betting on extended gains through next week.

Specifically, the weekly 2/26 135-strike call is leading the way today, and buy-to-open activity has been confirmed here. By initiating the long bullish positions, the speculators are looking for IBM to top $135 before the contracts expire at next Friday's close.

On one hand, it's not unusual to see option traders implement this bullish strategy, since call buying has had the advantage over put buying at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past two weeks on an absolute basis. Yet, that doesn't tell the whole story. IBM's 10-day put/call volume ratio of 0.92 is higher than almost four-fifths of readings from the past 12 months, meaning speculators have been buying puts at a faster-than-usual clip, historically speaking.

One reason for the blue chip's success today is an upgrade to "overweight" from "equal weight" at Morgan Stanley, which also boosted its price target to $140 from $135. The brokerage firm said it believes IBM deserves more credit for its transition to the cloud business, adding the stock "warrants a premium over other hardware companies." This optimism isn't exactly shared by Morgan Stanley's analyst peers. Specifically, 63% of brokerage firms say IBM is either a "hold," "sell," or "strong sell." Adding to this point, the stock's average 12-month price target of $132.40 is a discount to its current price. 

On top of the bullish analyst attention, IBM is also rising on news of its $2.6 billion purchase of Truven Health Analytics, a move meant to strengthen its Watson Health business segment. The company likely hopes it could also strengthen its positioning on the charts, where it's been underperforming for some time now. International Business Machines Corp. (NYSE:IBM) has been trending lower since its all-time high of $215.90 in early 2013. Narrowing the technical scope a bit, the shares have dropped 13.3% since their October high of $153.15. 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI