Filed under: Deals, Good news, International Business Machines (IBM), Options, Technical Analysis
International Business Machines Corp. (NYSE: IBM) shares are trading higher today on news that it will buy privately-held Solid Information Technology, a data-retrieval company. The move will grant IBM to add real-time data access ability to its database and information management offerings. Terms of the deal were not disclosed. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on IBM.
After hitting a one-year low of $88.77 in March, the stock hit a one-year high of $121.46 in October. IBM opened this morning at $109.90. So far this day the stock has hit a low of $109.15 and a high of $110.99. As of 11:40, IBM is trading at $110.36, up $1.52 (1.4%). The chart for IBM looks bearish but improving, while S&P gives the stock its highest 5 STARS (out of 5) strong purchase rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $100 range. A bull-put credit spread is an options position that combines the buy and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 4 weeks as long as IBM is above $100 at January expiration. IBM would have to fall by more than 9% before we would start to lose money.
IBM hasn’t been below $100 by more than a few cents since April and has shown support around $104 recently. This trade could be risky if the economic slowdown puts a damper on the technology sector, but even if that happens, this position could be protected by the strong support the stock found at $100, where it bottomed in November.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in IBM.
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