NEW DIRECTIONAL PUT PLAYS
International Business Machine - IBM - close: 151.55 chg: -2.12
Stop Loss: 155.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.1 million
Entry on January -- at $---.--
Listed on January 28, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
Big cap stocks have helped lead the market rally over the last few years. One high-profile name that has not participated is IBM. The S&P 500 delivered a +29.6% rise in 2013 while IBM lost -2%. In 2014 the S&P 500 index rose +11.5% while IBM lost -14.4%.
IBM bills itself as an information technology (IT) products and services company. Years ago they were mainly hardware. Then they made the switch to services and software. Today they provide IT infrastructure, business process services, outsourcing, cloud services, data analytics, database and content management, data warehousing, and a lot more.
The company has been suffering from falling sales. Last year the company saw its sales decline every quarter and miss Wall Street estimates. The last four reports saw their revenues drop -3.9%, -2.2%, -4%, and -11.9% in the most recent quarter. IBM management confessed that they are facing "unprecedented pace of change in our industry." It looks like investors believe IBM is stuck behind the curve and can't keep up.
There was some good news in their latest earnings report (January 21st, 2015) with cloud revenues up +60% last year. Unfortunately the rest of their business is struggling with declining sales. Management lowered their earnings forecast. Wall Street was expecting full year 2015 earnings of $16.55 a share. IBM guided down into the $15.75-16.50 zone.
The last few days there has been a lot of speculation that IBM is about to lay off up to 110,000 workers. The company denied these rumors and tried to switch the focus to their 15,000 job openings. As of today, there were a number of stories surfacing that the lay offs had begun. The company isn't discussing it while one reporter at CNBC claims IBM is only laying off 10,000 workers.
Technically the stock is bearish. Shares have been showing relative weakness. This year has been a steady trend of lower highs. IBM is approaching significant support near $150.00. The point & figure chart is on the verge of forming a new triple-bottom breakdown sell signal. If IBM breaks support at $150 the next support level could be $140 or even $130.
Tonight we are suggesting a trigger to buy puts at $149.75.
Trigger @ 149.75
- Suggested Positions -
Buy the MAR $145 PUT (IBM150320P145) current ask $2.26
Option Format: symbol-year-month-day-call-strike