Blowout IBM Earnings Spark Call-Option Buying Spree

Big Blue's calls gain after Wednesday's good news.
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The market's party rages on, courtesy of a new -- well, old -- guest to the technology sector's stock-price madness.

IBM's

(IBM) - Get Report

much-better-than-expected earnings hit the options floors like a thunderbolt. "This came out of left field," said one Philadelphia-based trader.

IBM reported first-quarter earnings per share of $1.55, vs. $1.06 a year earlier and compared with Wall Street expectations of $1.41. Out-of-the-money calls in IBM saw heavy buying in options trading: IBM May 200 calls gained 4 1/4 ($425) to 5 1/8 on volume of 4,481 contracts, compared with open interest of 2,019.

IBM's shares rose an eye-popping 23 to 195 at midday.

"IBM definitely has helped the strength today, and we'd been firming up earlier in the week," said Susan Morrison, vice president with

Dorsey Wright

. "Use the dip as a chance to get in.

Vodafone

(VOD) - Get Report

and

Nokia

(NOK) - Get Report

we added as call-buying recommendations."

But veterans are wary, particularly after the tech sector and

Nasdaq

got spanked Monday with the Internet-issues selloff. "Yes, people are buying on the dip mentality, which has been around for a long time and which hasn't yet been proven wrong," said Kevin Murphy, options strategist at

Salomon Smith Barney

. "So far, the rotation into cyclicals hasn't been completely across the board."

"But is this rally in IBM going to be a prolonged catalyst for the sector? The jury's still out. We're not convinced that once again, the market-cap leaders in techs and drugs will be able to sustain this incredible move," he said.

OK, so he sounds like Dad trying to turn down the stereo, just as the bash is getting into full swing. Technology-related options trading didn't stop for a moment.

Tellabs

(TLAB)

set a 2-for-1 stock split, and the stock price went through the roof. The company's shares gained 13 11/16 to 116 1/4; meanwhile, May 115 calls gained 4 3/8 ($437.50) to 6 5/8 ($662.50) on volume of 775 contracts.

"There's lots of call-buying all over the place, and volatility isn't going anywhere, oddly enough," said Steve Noonan of

Oppenheimer Noonan & Weiss

, Tellabs' lead market options maker on the

Pacific Exchange

. Volatility stuck around 60, just slightly higher than before the company reported earnings a week and a half ago and set the stock split.

If there's an even more speculative side to the tech sector, it surfaced in the options market for

China Telecom

(CHL) - Get Report

. December 45 calls traded heavily, on volume of 3,750 contracts, compared with open interest of 20. However, the price dropped slightly, down 3/8 ($37.50) to 2 3/4 ($275) on the CBOE.

There's been no news on China Telecom (Hong Kong), which holds a communications ministry's former mobile-phone assets in Guangdong, Zhejiang and Jiangsu provinces. Analysts are concerned the government plans to split the company's parent not only to increase competition, but also to acquire more cheap cellular operations from its parent, according to recent reports.