NEW YORK -- Bearish option traders are targeting International Business Machines (IBM) as shares break down through key support levels.
OptionMonster's Depth Charge tracking system detected unusual activity in the December 52.50 puts, with 3,400 purchased in the first 90 minutes of Friday's session for 45 cents to 65 cents. Almost 5,700 had changed hands by the end of the day, about 14 times the previous open interest in the strike.
Puts lock in the price where investors can sell shares in the once-great computing firm. This lets them protect against a decline or profit from a drop without the risk of selling short.
That was the right idea Friday because IBM continued lower and ended the session down 3.53% to $155.38. The value of the December 52.50 puts more than doubled to $1.10 in the process, which demonstrates the leverage that options can provide.
IBM's woes come as no surprise to viewers of our proprietary Market Action webinar, which has predicted weak business trends would precipitate a drop in the share price.
Friday's total option volume in the name was five times greater than average in the session.
-- Written by David Russell of OptionMonster
Russell has no positions in IBM.