Why Call Traders Should Bet on This Blue-Chip Stock

A shift in the options pits could put more wind in the equity's sails

Feb 8, 2022 at 10:19 AM
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Blue-chip tech name IBM (NYSE:IBM) is coming off a positive earnings reaction from late January, and earlier that month saw a breakout above a trendline connecting lower highs, followed by a pre-earnings bear trap move back below the trendline. This drift lower found support at said trendline, however, as well as its 200-day moving average. With this technical setup in place, now looks like a good time to bet on even more upside for IBM stock. 
 
Investors might want to do this speculation with options, especially considering the stock's Schaeffer's Volatility Index (SVI) of 24%, which stands higher than just 30% of readings from the past year. This means options players are pricing in relatively low volatility expectations for IBM at present.

It appears that options players are on the wrong side of this recent price action, and shifting of sentiment could put even more wind in the equity's sails. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) the equity sports a 10-day put/call volume ratio of 1.07, which stands higher than 93% of readings from the past year.

Additionally, analyst sentiment has been lukewarm, especially considering IBM's nearly 19% year-over-year lead. Of the 23 analysts in coverage, just six say "buy" or better, while 14 say "hold," and three say "sell" or worse.

It's also worth noting that efforts to use blockchain for food tracking have been well underway at several major companies, including Walmart and Nestle under a joint effort called Food Trust. This effort has employed technology from IBM, which may bode well for its business in the future.

Lastly, our recommended call has a leverage ratio of 10.2 and will double with an 8.1% pop in the underlying stock.

 

Subscribers to Schaeffer's Weekend Trader options recommendation service received this IBM commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

 

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