Server and computer company International Business Machines (IBM) have dropped 4 percent in the past year, outperforming the overall stock market by about 9 points. One trader sees a further decline for shares in the weeks ahead.
That’s based on the April 21 $116 puts. With 23 days until expiration, 3,949 contracts traded compared to a prior open interest of 199, for a 33-fold rise in volume on the trade. The buyer of the puts paid $0.56 to make the bearish bet.
The company next reports earnings on April 19, so this is likely a bet on a miss for the company. Shares currently trade for about $130, so shares would need to drop about 11 percent for the option to move in-the-money. The strike price is also right near the stock’s 52-week low of $115.54.
IBM has been a slow performer, with flat revenues over the past year, and a profit margin under 3 percent.
Action to take: Investors interested in tech should look for stronger growth plays. For now, it’s likely shares will continue to trade lower.
For traders, the April puts are inexpensive ahead of earnings, and could deliver mid-to-high double-digit returns. But there’s also little time on the options following earnings, to look for a quick mid-double-digit gain on shares in the weeks ahead to take profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.