Traders seeking strength are flocking to the Nasdaq in droves. The tech-laden index continues to be the best looking of the bunch, and its dominance has only increased during earnings season. Solid performance from Apple Inc. (NASDAQ:AAPL) to Microsoft Corporation (NASDAQ:MSFT) following their respective earnings releases has helped keep the good times rolling. But do you know which heavy hitter may be sporting the best opportunity right now? International Business Machines Corp. (NYSE:IBM).
Let’s take a deep dive into the chart of IBM stock to see what kind of trade we can drum up.
Like the lion’s share of the equities market, IBM jumped into an uptrend following last year’s election and it hasn’t looked back since. The tech titan entered the new year with a solid high base pattern that created a breakout opportunity for technical traders.
And they didn’t have to wait long. Big Blue’s earnings beat from Jan. 19 served as the excuse for buyers to come rushing in.
The action in IBM stock since then has been textbook. After breaching the $170 resistance level, the stock gained a quick ten bucks before the bulls’ fury finally faded.
Since then, mild profit-taking has created an attractive four-day pullback. Traders loath to chase now have their opportunity to scoop up shares at a discount.
Recent volume patterns have also been favoring buyers. The post-earnings breakout was accompanied by a handful of accumulation days suggesting institutions were entering the fray with aggression. And while the stock has retreated in recent days, the volume has been muted suggesting a lack of any real conviction by sellers here.
Throw it all together, and this IBM stock dip looks like a buy.
IBM Stock Calendars, Anyone?
With earnings fading in the distance, IBM options have become cheap again. And that means long option trades carry much less risk. Let’s build a calendar spread to capitalize on further upside in the stock over the coming month.
First, buy to open the Apr $170 call for around $7.60. Then, sell to open the Mar $180 call for around $1.25. This creates a diagonal call spread for a net debit of $6.35. The max loss is limited to the initial debit and will be forfeited if IBM sits below $170 at Apr expiration.
To minimize the loss, I suggest exiting if the stock breaks the $165 support level.
The max profit is around $400 and will be captured if IBM sits right at $180 at March expiration. Since the April option will only have one month remaining at March expiration, I suggesting exiting at that point.
At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.
