Options Trading for the New Year

Options trading for the New Year has to do with where the action will be in the stock market. Whether a given stock promises to goes up or down in value its potential movement provides possibilities for the options trader. An ever interesting options target is IBM. The old company still outperforms all other American companies in the numbers of patents that it produces each year. However, the rap on IBM is that it develops talent but does not reward it and does not efficiently develop products. What are IBM stock prospects this year for the options trader? People invest in stock prospects, not unfulfilled research.

Two old stalwarts, IBM and AT&T have long been known as leaders in basic research. The list of Nobel Prize winners who made their discoveries at Bell Labs include Davisson in 1937 for demonstrating the nature of matter through Boyle and Smith in 2009, with others, for invention of an imaging semiconductor circuit. IBM has likewise produced impressive basic research.

That being the case, why is AT&T now Alcatel-Lucent and why is IBM no longer the big daddy of all computer companies? The ability to foster talent internally and bring salable products to market has been the bugaboo for both companies. An interesting turn of events for IBM is a new designation of its research labs and the promise of having basic research much more closely connected to out-of-company developers. Options trading for the New Year could have interesting stock prospects for the options trader if IBM can make something out of its promised connection to more fleet of foot developers outside of the company.

The point of mentioning Alcatel-Lucent and IBM is not to suggest that the options trader trade either stock, nor to play down stock prospects for either company. It is that successful options trading for the New Year will depend upon the options trader having intimate knowledge of companies and therefore an accurate sense of what value the companies will return investors versus the start of the year promise they offer.

Basically the options trader wants to develop an accurate sense of what the stock prospects are based upon short term investor sentiment and based up the ability of deliver results in the medium and long term. Strong stock prospects will drive the price of a stock up whereas inability to deliver as promised will drive the stock down. If the options trader believes that the current value of a stock will not be supported by subsequent sales, buying a put on the stock would be a good idea. Options trading for the New Year could be very lucrative for the options trader who correctly predicts drops in stock prices and is able to sell to stock at the strike price (contract price) when it has dropped to a substantially lower spot price (market price).

Here’s hoping that all promising research with all companies bears fruit for the benefit of all in the coming year. And, here’s hoping that you, the options trader, correctly buy your puts and calls to benefit from the winners and losers. Happy and successful options trading for the New Year!