I See a Bearish Pattern for IBM: Levy

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Dec. 26 (Bloomberg) -- Zacks Investment Research's Jared Levy discusses the outlook for IBM with Olivia Sterns on Bloomberg Television's "Market Makers." (Source: Bloomberg)

At this year compared to the overall debt which is up about 25%. you think it is overbought, why?

Without confusing everybody, longer term i like ibm.

Their recent acquisition of aspera and other things they are doing is there.

In the near-term, up until january options expiration, i see a bearish pattern.

When you look at the charts, i see a dissenting handle and we are at the top of the channel and i think we are about to turn down.

Into the end of the year, i think there will be bullish support.

Into 2014, i don't know if ibm is going to crash or fall but i don't think it will get above 190. that is my best with this trade.

You are a short term bear.

What exactly is your options strategy?

This is the real key -- ibm reports earnings on january 21. options expiration i believe is on january 18. i am selling the january regular expiration.

This will expire before the earnings report and i am selling the $1.90 call and biting though $1.95 call.

The full risk of the trade is $4.50 for it i will make about 11% of my money.

The key is the fact that statistically speaking ibm only has about a five percent shot of getting through that 195 mark.

I have about an 83% chance that i will be able to make my money on this trade.

Based on the technicals, that seems to be the likely outcome.

This sounds pretty risky.

You stand to lose more money than you could make.

Yes, whenever i do these traits, i get those questions.

The way to think about is this -- if you bought a $4.50 stock and it went up to five dollars -- that's a good return.

That is the return perspective.

From the risk perspective, think about it that the 200 day moving average is below 190. ibm has not been above that in many months and i don't think it will crack that before the earnings report.

Statistics are on my side and volatility is on my side which should remain low until earnings.

The trade gives me that statistical probability.

You are closely watching the technicals.

Are there any technicals that you could see that would make you want to bail from this trade?

What if the market goes up 10%? ibm has had a low correlation to the broader markets i am not so concerned about the broader market.

My main concern is news.

With the aspera acquisition, we got that run and i think it will be tremendous for them in the long run.

I don't think technically it will move the stock higher.

If the 20 comes back above the 50 day moving average, you might want to be more cautious and monitor the trade.

This looks like a good statistical winner aaron there are risks.

Thank you so much.

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