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Why One Options Trader Is Betting Against Buffett’s IBM

Amara Omeokwe, Options Action Producer
Monday, 7 May 2012 | 12:38 PM ET

It was a summer state of mind on this week’s Options Action.

After the worst week of the year for the S&P 500and the Nasdaq, Riskreversal.com’s Dan Nathan thinks the scene is set for a global stock swoon over the next few months.

What’s behind that reasoning is what Nathan sees as an eerie resemblance between now and May of last year, when stocks hit their 2011 highs. Consider the similarities: a steep sell-off in crude oil, a hot social-networking company on the brink of an IPO (LinkedIn then, Facebook now), and Eurozone worries sending jitters across continents. With that in mind, Dan thought IBM , a name with lots of international exposure, could be in for a move lower. He expressed his bearish view on Big Blue by buying a put spread.

Dan’s IBM Trade:

  • Buy July 200-Strike Put for $5.00
  • Sell July 185-Strike Put FOR $1.70

How Dan’s IBM Trade Makes Money:

  • Losses above $196.70
  • Profits between $196.70 - $185
  • Profits Capped at $185

The forecast for summer wasn’t all gloomy on this week’s show, however. With "The Avengers" kicking off the start of the summer movie season, CRT Capital’s Mike Khouwthought that the company behind the blockbuster could be in for a boost.

Before making a bullish bet on Disney , Khouw turned to Oppenheimer’s Carter Worth, who confirmed that the technicals were setting the stock up for a move “up and out in a big kind of way.” And while the appeal of "The Avengers" was not lost on Khouw, he also pointed to Disney’s diversification and valuation as strong fundamental reasons for why the stock could head higher. He expressed his view with a simple call purchase.

Mike’s Disney Trade:

  • Buy July 45-Strike Call for $0.85
  • How Mike’s Disney Trade Makes Money:
  • Profits Above $45.85

Watch Options Actionon CNBC Fridays 5:00pm ET, Saturdays at 6a ET and on Sundays at 6a ET

Questions, comments send them to us at: optionsaction@cnbc.com

  Price   Change %Change
S&P 500
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NASDAQ
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DIS
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IBM
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LINKEDIN
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