NEW DIRECTIONAL CALL PLAYS

International Business Machines - IBM - close: 145.82 change: +1.54

Stop Loss: 142.99
Target(s): 149.90, 157.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
The stock market just refuses to correct lower. Eventually stocks will see some profit taking and it could begin this week. However, we should also consider the alternative. What if stocks continue to melt up higher to close out the year on a strong note? If that happens then IBM could lead the charge. Shares of this technology giant are have been consolidating sideways for weeks and look poised to breakout higher. I am suggesting that we wait for IBM to hit $146.75 and use that move as our entry point to buy calls. If triggered we'll use a stop loss at $142.99. Our first target to take profits will be $149.90. Our secondary, longer-term target is $157.50 (which could take weeks to achieve). More conservative traders may want to wait for IBM to close over $147.50 (a new closing high) before initiating new positions. I do want to point out that my biggest concern would be an intraday rally that fails. If IBM surges through resistance only to reverse it could be a caution signal, especially with the stock market overbought. FYI: The Point & Figure chart on IBM is forecasting a long-term target of $196.

Breakout Trigger @ $146.75

- Suggested Positions -

Buy the 2011 January $150 calls (IBM1122A150)

- or -

Buy the 2011 April $155 calls (IBM1116D155)

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010