The strength of IBM makes it a predictable bullish target for short-term option income as well as long-term value growth in the stock. Here is an example of how to make money short term using options based upon the predictable and consistent movement of the stock.
International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. The Global Technology Services segment provides IT infrastructure and business process services, including strategic outsourcing, process, integrated technology, and maintenance services, as well as technology- and process-based services." (Yahoo Financial)
On September 20, 2010, it was announced that IBM would buy Netezza Corporation. The purchase of this company would expand IBM's business analytics initiatives to help clients gain faster insights to their business information, increasing performance at a low cost. Netezza is a leading provider of high-performance analytics in a data warehousing appliance that can be up and running in a matter of hours, handling complex analytic queries 10 to 100 times faster than traditional systems.
While analytics is a top priority for most Chief Information Officers, IBM and Netezza working together is a game changer that has brought more than 350 clients to Netezza. It has seen 40% growth since working with IBM.
This is just one example of the smart business moves IBM makes that continues to lift its stock value. It is moving into its third year of continued growth, value, and expansion as a company. While we believe IBM is a good long-term investment, we also see a consistent bullish peak and valley channel that investors looking to make more money on IBM may be interested in taking advantage of.
The stock consistently moves up and down between the upper and lower channel in 6 to 8 month intervals. Since it has recently approached and touched the upper resistant trend line, we would suggest positioning yourself for a move back down. Look at a Bear Put Spread as a strategy.
(Click chart to expand)
Bear Put Spread
Our bullish channel extends from 180 to 198 but currently the Bollinger Bands are a lot tighter than the channel. For this reason we would advise using the 50-day MA as a reference point for the trade. Giving ourselves a good time decay cushion look at making the trade like this:
- Buy July 2012 '190' put options (presently priced at $6.65)
- Sell July 2012 '185' put options (presently priced at $5.15)
- Net Debit to Start: $1.50
- Max Profit: $3.50
If one wishes to give time decay more time, moving into October for the trade period might be more advisable if the trade did not take place yet. But while IBM moves up, if offers a great opportunity to make money short term using options as well as investing long term in the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
