Buy Alert: October 18, 2012

Marcus Haber | October 18, 2012

Buy Alert: October 18, 2012

Trade Details

Buy International Business Machines (IBM) November 2012 $205 Calls for $0.80 or better

Why?

IBM shares have been hammered since their earnings report Tuesday after market close. In just two days, the stock’s fallen roughly 6%. In a nutshell, the company barely beat on earnings, but missed on revenues. Moreover, revenues dropped 5% year over year.

Investors are taking it as a sign that IT spending is slowing and IBM could be in for a tough fourth quarter.

I disagree. You see, the company saw a negative currency impact of around $1 billion. That’s a non-recurring hit to revenue that’s nearly impossible to predict.

More importantly, the stock just hit its 200-day moving average. That’s a powerful support level. I don’t see IBM breaching that support line for long, if at all. There’s a strong likelihood of a bounce, so let’s buy the November $205 calls.

We could easily see IBM get back above $200 – and that will certainly give a big boost to our calls.