How trader is using puts to play IBM

optionMONSTER

Shares of IBM are on pace for a new all-time closing high, but a put trade dominates its option activity today.

IBM, which set an intraday high of $199.23 last week, is up 0.42 percent to 198.35 in midday trading. Shares have been trending higher from support at $155 in the last six months.

The big option trade of the day in Big Blue a put spread . A trader bought 4,000 April 180 puts for $1.22 and sold 8,000 April 165 puts for $0.45. The previous open interest at each strike was fewer than 200 contracts, so this is a new opening position.

The ratio spread cost the trader $0.32, which will be lost if IBM is above $180 at expiration. The maximum profit would come with shares down around $165 at that time. The trader would be required to buy shares below that strike if assigned. (See our Education section)

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