International Business Machines Corp. (NYSE: IBM )
has not announced any news since its earnings report on Jan. 19,
but at least one investor expects longer-term upside and bought a
call one-by-two spread in the computer maker.
The January 2011 135 calls have crossed 5,000 times versus
current open interest of 2,300 contracts, while the January 2011
150 calls have changed hands more than 10,500 times versus current
open interest of 2,700 contracts. The 135-strike calls are
currently up 30 cents on the day to $6.50 per contract, and the
higher-strike calls have gained seven cents to around $2.50 per
contract. During midday trading, an investor bought the 135-strike
calls and sold twice as many of the higher-strike calls for a net
debit of $1.50 per spread.
If IBM shares close at $150 on January 2011 options expiration,
this trader makes a maximum profit of $13.50 per spread (the
difference between the strikes minus the debit paid). If IBM shares
close below $135 at January 2011 options expiration, the trader
incurs a maximum loss of $1.50 per spread (the premium paid). Also,
the investor is subject to unlimited risk if IBM shares close
higher than $163.50 (the upper breakeven) at January 2011
expiration. This means the moderately bullish investor is calling
for the stock to finish at expiration between the breakevens of
$136.50 and $163.50, with max profits achieved right in the middle
at the 150 strike.
IBM reached a 52-week high last week of $134.14, but the stock
is currently 5% off that level to $126.50 per share. Now that the
company's earnings are out of the way, at least one investor is
taking a moderately bullish stance and expects the stock to
experience limited longer-term upside.
--Kevin Cook contributed to this article
For more on IBM:
Trading a bull put spread in IBM
IBM: Bull and bear plays following IBM earnings