Way-out-of-the-money call buying in IBM (NYSE: IBM)

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Shares of International Business Machines Corp. (NYSE: IBM ) are edging up toward their 52-week high during today's trading session, but a way-out-of-the-money ( OTM ) long call trade that crossed the tape this morning suggests one investor anticipates significant upside throughout the later-term.

IBM reached a 52-week high of $134.25 in March, and the stock is currently trading just 2% off that level. The shares have gained $1.87 to $130.90 so far today without any news from the computer company today. IBM earnings figures are due on April 19 after the market closes, and analysts at Thomson Reuters estimate earnings of $1.93 a share.

Before analyzing the risk/reward profile of this long call position, open a free virtual trading account to gain access to tools essential to your stock and option portfolio.

At 10:55 a.m. EST, a block of 10,000 OTM July 150 calls changed hands for 20 cents per contract versus current open interest of 2,700 contracts, indicating the investor most likely bought these options to open. This IBM investor will make money if the stock climbs higher than $150.20 prior to July options expiration, which represents a 15% rally from its current level. Investors could make unlimited profits if the stock continues to soar higher above the breakeven, but this trade caps any losses at the premium paid, or 20 cents per contract, if the stock trades lower than $150.20. While this trade accounts for a significant pop-up in the stock, this call buyer could also be hoping that the calls will appreciate prior to July expiration, even if the stock stays well below $150. In that case, they could choose to sell back the options prior to July expiration. For example, these calls have a five-delta, meaning they should rise five cents for every dollar the stock goes higher if implied volatility stays unchanged. That would mean that the investor could double their money on this $200,000 with a mere $4 rally in the shares.

The July 150 calls have gained four cents so far on the day, and have an implied volatility of 16% compared to the stock's 30-day historical volatility of 10%. Interested in trading this long call position in the real world? Don't miss out on an opportunity to trade commission-free at OptionsHouse .

To see a risk/reward graph of this large bet on IBM and explore some of the fundamental motivations, see Market Analyst Kevin Cook's analysis called, " Options Leverage Used Sensibly in IBM Bullish Play ."

To see a risk/reward graph of this large bet on IBM and explore some of the fundamental motivations, see this analysis by Kevin Cook today:

Options Leverage Used Sensibly in IBM Bullish Play http://www.onn.tv/buy-and-trade/options-leverage-used-sensibly-in-ibm-bullish-play/

To see a risk/reward graph of this large bet on IBM and explore some of the fundamental motivations, see this analysis by Kevin Cook today:

Options Leverage Used Sensibly in IBM Bullish Play http://www.onn.tv/buy-and-trade/options-leverage-used-sensibly-in-ibm-bullish-play/



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Options

Referenced Stocks: IBM , OTM

Jud Pyle

Jud Pyle

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