Bulls triple their money in $IBM

IBM rebounded sharply this week, returning large gains on upside option positions.

On Dec. 12, Investitute’s tracking systems detected the purchase of 4,100 February $160 calls for $2.84 to $3.50 with shares at $157.09. These were clearly new positions, as open interest in the strike was only 927 contracts before the activity appeared.

Those calls traded for $9.10 this morning, more than triple their original purchase price. The stock rose 7.4% in the same time period, illustrating the kind of leverage that can be achieved with options.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

IBM spiked to $168.72 this morning before pulling back with the rest of the market to close at $165.37, off 0.53% on the session. The computing icon fell last Friday despite reporting its first revenue growth in nearly six years.

(Disclosure: I am long IBM.)