Play IBM Calls

One Final Play

By Bryan Bottarelli
Tuesday, October 09, 2007 3:48 PM EDT
Tue, 9 Oct 2007 19:48:00 GMT

Dear Bottarelli Research Member,

As we close out another wonderful trading day, sometimes you face a situation where the most powerful trades are so obvious — you miss them altogether. But luckily for us, that won’t be the case today. For example, look no further than International Business Machines (IBM – NYSE).

IBM

As you know, Big Blue offers the best all-around technology play out there — manufacturing and developing computer systems, software, storage systems, and microelectronics. Now, while all of the NASDAQ-listed tech stocks like AAPL, GRMN, and RIMM are receiving all the attention, the most powerful stock in the tech sector (in terms of a pending upside breakout) now looks to be IBM.

Why? Look no further than the falling dollar.

Since IBM is amultinational company, all of their overseas profits are translating into even stronger returns. For example, IBM recently reported that their quarterly revenue rose 9% from a year earlier. But without any currency changes, this gain would have only come in at 6%. In other words, the large portion of overseas sales that IBM books leads to even larger profits after the currently exchange rates are taken into effect. It’s a wonderful position for IBM that not many investors truly realize yet, and that’s why I like the idea of adding November calls on IBM.

Furthermore, with the IBM November 120 calls (IBM KD) trading for only $3.20 per contract, this is quite a substantial discount to similar $100 tech stocks listed over on the NASDAQ. A November 120 call on RIMM, for example, trades for $5.80. That’s means the IBM calls are trading at a massive 81% discount to a similarly priced NASDAQ tech stock. With all these bullish triggers in place, let’s close out the trading day by adding this powerful position to our ledger.

PLAY: Buy the IBM November 120 Calls (IBM KD) at or under $3.30, good for the day. Place a protective stop limit at $1.90.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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