Bulls score big profits in $IBM

IBM rallied on strong quarterly results today, handing large gains to upside option traders.

On Oct. 31, Investitute’s tracking systems detected the purchase of 9,000 June $120 calls for $5.45 to $6.05 with shares at $115.22. This was clearly fresh buying, as open interest in the strike was only 197 contracts before that session began.

Those calls traded up to $16 today, more than 2.5 times their purchase prices. The stock rose 16.49% in the same time period, underscoring how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

IBM rallied 8.46% to $132.89 today. The computing icon announced a positive outlook after topping earnings and sales estimates last night.

(Disclosure: I am long IBM.)