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Saturday, December 2, 2023

IBM Call Buyers Foresee New All-Time Highs Ahead


Today’s tickers: IBM, BIG & MMM

IBM – International Business Machines Corp. – Bullish options are in play on the world’s largest computer services provider this morning after IBM raised its quarterly dividend to $0.85 a share and increased the size of its stock buyback plan by $7 billion. Shares in the Armonk, New York-based Company are up 1.65% at $201.90 as of 11:05 a.m. ET. Weekly calls with a few trading days remaining to expiration are active, with the April ’27 $205 strike contracts drawing the heaviest volume in the expiry. The $205 calls have changed hands more than 2,300 times in the first half of the session versus 779 open positions, and it looks like most of the volume was purchased for an average premium of $0.26 apiece. Call buyers may profit at expiration as long as shares in IBM rally another 1.7% to surpass the average breakeven price of $205.26. Meanwhile, fresh interest in the June expiry calls suggests some traders are positioning for IBM’s shares to potentially hit fresh record highs in the next couple of months. The June $215 strike calls have traded more than 600 times this morning against open interest of 133 contracts, with much of the volume initiated by buyers paying $0.37 apiece, on average. Investors long the calls stand ready to profit in the event that shares in IBM surge 6.7% to top an average breakeven share price – and new all-time high – of $215.37 by June expiration.

BIG – Big Lots, Inc. – Shares in Big Lots are down big time after the discount retailer of consumer goods lowered its first-quarter sales forecast. The Columbus, Ohio-based Company’s shares are down more than 20.0% today to stand at $36.40 on the sales guidance and a slew of analyst downgrades. Options on BIG are mixed this morning, with front-month activity suggesting traders expect the price of the underlying to move one way or the other in the near term. Traders positioning for a rebound in the off-price retailer picked up approximately 265 calls at the May $37.5 strike for a premium of $0.82 each, as well as another 100 lots at the higher May $40 strike at a premium of $0.25 apiece. Call buyers may profit if shares in Big Lots can regain some lost ground in the next few weeks to May expiration. The contracts expire the Friday prior to BIG’s first-quarter earnings report on May 24th. Put options are more active than calls on the name, with the contracts changing hands around 1.4 times for each single call in play today. The May $35 puts traded some 825 times in the first half of the session against zero open positions. Most of these put options appear to have been purchased for an average premium of $0.71 each. Put buyers profit at expiration if shares in Big Lots decline another 5.8% to breach the average breakeven price of $34.29.

MMM – 3M Company – The Post-it Note producer’s shares popped up 3.0% to $89.75 after 3M Company posted better-than-expected first-quarter earnings ahead of the opening bell this morning. Options on 3M Co. are far more active than usual following the report, with overall volume of 22,500 contracts up three-fold versus the 90-day average options volume of 7,414 contracts. One notable transaction, a four-legged spread in the January 2013 expiry, is profitable if shares in MMM remain range-bound at expiration next year. The trade appears to be a 502-lot iron condor, specifically the combination of a Jan. 2013 $92.5/$97.5 call credit spread with a Jan. 2013 $80/$85 put credit spread, yielding maximum potential profits of $3.07 per contract as long as shares settle above $85.00 and below $92.50 at expiration. While a limited risk strategy, the trader responsible for the position could face losses of up to $1.93 per contract in the event that 3M’s shares rally above $97.50 or drop below $80.00 by expiration in January.


Caitlin Duffy

Equity Options Analyst

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