A Top Bonus Trade Idea for November 3

11/04/2014 7:00 am EST

Focus: STOCKS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management


Since this former tech powerhouse's stock dropped dramatically following its earnings report and finally found a bottom last week, Greg Harmon, of Dragonfly Capital, studies the chart and suggests five possible trade ideas for how to take advantage of this weakness.

IBM (IBM)


chart
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IBM, dropped dramatically following their earnings report, finally finding a bottom last week as it consolidated over 161.50. The bounce higher is gaining some momentum as the RSI is pushing higher off of an oversold bottom at 20 and the MACD is about to cross up, a buy signal. There is resistance at 169 and the prior triple bottom at 172.60 before a gap to fill to 180. Short interest will not really help at under 3%.

Trade Idea 1: Buy the stock with a stop at 161.50.
A straight play for more upside against the low as a stop.

Trade Idea 2: Buy the November 7 Expiry 165 Calls (offered at 90 cents late Friday).
A defined risk low capital way to play for short-term upside.

Trade Idea 3: Buy the November 7/November 165 Call Calendar (83 cents).
This gives longer-term upward potential recognizing the large open interest this week at 162.50.

Trade Idea 4: Buy the November 162.5/November 14 165 Call Diagonal ($1.80).
This gives longer-term upside, if the price breaches 165 by November 14, then you will need to buy back the short calls and resell November upside calls for a call spread.

Trade Idea 5: Buy the November/December 170 Call Calendar selling the November 7 160 Puts (46 cents).
This is an intermediate-term long position with short-term downside risk.

By Greg Harmon of Dragonfly Capital

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