Follow Warren Buffet's Lead With Options on Big Blue

If you’re going to follow anybody’s move in the market, I don’t think you could do much better than Warren Buffet. He seems to be right a lot more than most of us. In fact, following him is almost like having insider information on a stock.

Here’s what he’s up to now.

IBM options are humming with activity today following billionaire investor Warren Buffett’s interview on CNBC’s Squawk Box. Shares in IBM rallied 1.3% to $189.84 at the start of the session after Buffett revealed that Berkshire Hathaway acquired a 5.5% stake in the company, mostly during the third quarter. The acquisition of IBM stock reportedly cost Buffett’s cash-rich company $10.7 billion for 64 million shares.

Investors positioning for shares in IBM to continue to climb this year snapped up call options in the December expiry. It looks like investors picked up 1,500 calls at the Dec. $190 strike for an average premium of $4.81 apiece, and purchased another 1,700 calls at the higher Dec. $200 strike at an average premium of $1.09 a-pop. Call buyers are prepared to profit should IBM’s shares rally another 2.6% and 5.9% to surpass the average breakeven prices of $194.81 and $201.09, respectively, by expiration day next month.

Meanwhile, the purchase of a roughly 2,000-lot Nov. $185/$190 put spread at an average net premium of $1.74 per contract indicates at least one strategist is prepared should Big Blue’s shares slip ahead of expiration on Friday. The trader may walk away with maximum potential profits of $3.26 per contract if shares in IBM pull back to trade below $185.00 at expiration.

See Forbes for the entire article

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