IBM Move Makes Put Spreads Look Tasty…

  • April 19, 2001
  • Jon Najarian

Although we are seeing
bullish $ weighted money flow into a number of tech stocks, the commitment seems
light. For instance, PMC-Sierra
(
PMCS |
Quote |
Chart |
News |
PowerRating)
has
traded 5:1 on the absolute volume side and even greater bullish $ weighted
call volume of 21:1, but the oomph just doesn’t seem to be there. Maybe
we’ll see it pick up, but the bulls seem tired. Not scared, but halfway
through the session there seems to be a strange calm on the trading floor. As
for PMCS, it just crossed the 50-day moving average at $36.39 and made it up to
37.75 on the squeeze before easing back to just above that support.

Symbol color:black”>

 Call

VolumePut

Volume$W

Call Vol$W

Put Vol

PMCS color:black”>

 color:black”>20,117 color:black”>4,054 color:black”>140,087 color:black”>6,681

OPWV color:black”>

 color:black”>5,256 color:black”>1,189 color:black”>26,196 color:black”>1,874

TXN color:black”>

 color:black”>17,191 color:black”>4,023 color:black”>135,388 color:black”>9,781

AMD color:black”>

 color:black”>20,942 color:black”>4,729 color:black”>64,014 color:black”>4,917

CSCO color:black”>

 color:black”>35,016 color:black”>7,815 color:black”>136,991 color:black”>13,006

EMC color:black”>

 color:black”>29,390 color:black”>9,482 color:black”>141,408 color:black”>19,065On one hand, the bulls
can take solace in the fact that there has been virtually no pullback from
yesterday’s surge. On the other hand, the bears could be biding their time,
waiting for the bulls to exhaust themselves, before making a move.

Lastly, if you take a look at the chart of IBM
(
IBM |
Quote |
Chart |
News |
PowerRating), you will note for the past five months Big Blue has bounced from the
high 80s to the high teens. Given the moon shot IBM has just made, eclipsing
five strike prices in just four trading sessions and the fact that there is
overhanging resistance just above where its trading, we think a cheap put spread
may be in order.

Therefore, traders will be looking at buying either the May 110 — 100 put spread for $2.20,
or buying the May 115 — 105 put spread for $3.40. Obviously, the 115 — 105
put spread will move more quickly, as it is the at-the-money spread, but both
offer fabulous risk vs. reward ratios. In fact, if IBM were to retrace half
of the past day’s 21-point rally, I could see either spread doubling in
value.

We have a time change for our show, “Doctor J & the Traders" on www.webfn.com
this week. The show will air live at 2:30 pm Pacific, 3:30 pm Mountain, 4:30 pm
Central and 5:30 pm Eastern. Be sure to tune in to see and hear yours truly,
Goran Yordanoff and Lou Borsellino discuss the Fed cut, IBM, AAPL and INTC
earnings reports!

(1010WallStreet.com
has licensed the use of Hamzei Analytics proprietary options analytics)