EOT Trade Alert – December 2, 2008

| December 2, 2008

December 2, 2008

Trade Alert:

    Buy IBM January 2009 $60 PUTS at $1.85 or better (IBMML)

Company Background:

International Business Machines (IBM) really needs no introduction, they’re one of the largest technology companies in the world.  The official description is, the company develops and manufactures information technologies, including computer systems, software, networking systems, storage devices, and microelectronics worldwide

Short-Term Catalyst:

Normally the IT industry benefits from a year end spending surge.  It’s the natural cycle of business and government budgets around the country.  The use-it or lose-it mentality causes anyone with a leftover dollar in their budget to spend it… and the most likely expenditure is something technology related.

Now we’re in a very different economic environment.

With the corporate belt tightening going on, businesses are more likely to keep that extra dollar.  As a result I’m expecting IT spending to fall in the fourth quarter.

I’m not the only one.

Gartner group is a leading IT consulting firm.  They recently announced global computer server sales fell in the third quarter.  Sales were down 5.4%.  Did you know IBM happens to be the largest provider of server systems in the world?

I’m expecting their financials to suffer from this one-two punch.  As a result the stock should decline in the next few months.

On a technical basis, the company’s stock is trading well below its 50-day moving average.  Just last week the stock bounced lower off the 20-day moving average.  We also had a moving average crossover to the downside in mid-November.  All of this points to a much lower price.

Trade Details:

Option Ticker Symbol: IBMML
Underlying Stock Symbol: IBM
Current Bid-Ask Price: $1.50 – 1.65
Option “Buy Up To” Price: $1.85
Break-Even On Stock At Expiration: $58.15
Maximum Risk Per Contract: $185

Exit Strategy:

IBM is trading at $76.27 a share. Resistance levels will be at $90 and again at $95. Remember we want this stock to move lower. Support levels will be at $72.50 and again at $70.



Category: EOT Trade Alert

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