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Today's editorial pick for you
Here's Why IBM Stock Options Could Be Significantly Mispriced in Your Favor
Posted On Jan 12, 2026 by Joshua Enomoto
Retail traders seeking a clear edge in the options market may want to consider legacy tech giant International Business Machines (NYSE:IBM). While "Big Blue" no longer commands the same awe it did during its heyday, a concerted effort over the years to restore its relevance has paid off. In the trailing year, IBM stock has gained nearly 40%, ranking among the top players in the shaky tech ecosystem last year.
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However, if you're a proponent of technical analysis, more upside could be on the way. It's possible that between late October last year to now, IBM stock may be forming a bullish wedge. At the apex of this supposed pattern, the security could shoot higher.
From a more empirical angle, there's another reason to be optimistic. In the last two months, the general trend of IBM stock has been net pessimistic. As one of the trusted blue chips, though, Big Blue tends to attract discount-hunting buyers. Subsequently, the softness in the security could lead to a reflexive move higher as contrarians eagerly scoop up the shares at a discount.
Even better, Wall Street lacks an efficient mechanism to price risk for certain edge cases — and I believe that IBM stock is a prime example. Therefore, the tech juggernaut deserves close attention, especially among data-driven options traders.
Exposing the Black-Scholes Superpower
Anytime a retail trader places a wager in the options market, the assumption must be that the transaction is downstream the access pipeline. While it's romantic to think that you might have the inside scoop or that you see something that others do not, the harsh reality is that whatever actionable insight you are pondering has already gone through multiple institutional layers.
Even expert opinion, which by default represents a downstream construct, has likely been disseminated to privileged investors first. By the time you're sitting in your easy chair looking at your E*Trade account or whatever, the insight has been processed, digested and already acted upon. Furthermore, there's really nothing you can do to go upstream in the access channel, except by becoming an institutional investor yourself.
Where people get tripped up is the assumption that you have to accept the disadvantaged position. You do not. What you can do is to go upstream the informational processing space.
Let me be 100% clear: no one knows what will happen tomorrow. Therefore, any statements about the unknown future are inherently presuppositional. Moreover, these presuppositional statements — whether they are talking about stocks that are undervalued, overvalued or priced for perfection — are never neutral.
That means anytime information is filtered through a lens, such as the Black-Scholes model, it is downstream of that filter. Most retail traders are disadvantaged because they accept the framing of Wall Street's presuppositions — and thus end up playing the game of the elites.
You know who wins that game? Over the long run, not you.
What I am proposing is that we go upstream the informational processing space orthogonally. Think of options trading like judo. If you find yourself tussling with a 300-pound man — and you're only half his size — you're not going to win a straight-up contest of strength. Instead, you must use physics to leverage your opponent's weight against him.
Indeed, Black-Scholes has a serious problem — and we can use this problem to our advantage.
Trading IBM Stock the Smart Way
So, what exactly is Black-Scholes, and why is it important for trading IBM stock? Essentially, the Black-Scholes model is a standard mechanism for estimating the forward value of an options contract. However, it is a one-size-fits-all approximation of risk and is almost certainly not fully accurate. A major epistemological fault line is that the model assumes stock returns are lognormally distributed.
Mathematically, risk is defined as a function of distance to the current spot price. So, from a debit trader's perspective, the further away a target price point is from the current market price, the less likely the projected outcome is to materialize. In football terms, a 50-yard field goal is much more difficult than a 30-yard attempt.
However, the problem is that Black-Scholes doesn't account for the many exogenous factors that impact stock returns. For example, a 30-yard field goal could be next to impossible to make in snowy weather with a heavy crosswind. In that case, a 50-yard attempt in a clean environment may be the more probabilistically prudent choice.
When we step away from standard methodologies and analyze stocks based on a hierarchical framing, we can more easily see that risk should not be defined as a function of distance (to spot) but as a function of state. In other words, different behavioral states lead probabilistically to different outcomes.
Consider IBM stock. In the last 10 weeks, it only printed four up weeks, leading to an overall downward slope. For the bulls, this setup might seem overly risky because it appears that the bears have control. However, we know through studying past analogs of this 4-6-D (four up, six down, downward trend) sequence that the next 10 weeks tend to resolve upward.
Of course, it's not a guarantee. However, from the past analogs, we would expect IBM stock over many trials to range between $290 and $350. Further, probability density would likely peak at $330. Under the Black-Scholes model, IBM stock reaching $330 by the Feb. 20, 2026, expiration date is a low-probability affair, about 22.56%.
While I can't give an exact statistical counterpoint, my argument is that, over many trials of the 4-6-D sequence, IBM stock would most likely terminate around $330 over a fixed-time distribution. Therefore, certain IBM calls are very likely mispriced in your favor.
A Compelling Trade to Consider
Based on the market intelligence above, one trade really stands out, and that's the 325/330 bull call spread expiring Feb. 20. This trade requires IBM stock to rise through the second-leg strike ($330) at expiration. If it does, the maximum payout clocks in at 212.5%. Further, breakeven lands at $326.60, adding to the probabilistic credibility.
Ultimately, this trade is betting on the expected probability mass following Big Blue's statistical response to the 4-6-D sequence. From a fundamental angle, the extended weakness of IBM stock may inspire discount buying, especially among the institutional investors who gravitate toward these big blue chips.
Even better, the Black-Scholes model is pricing risk for IBM stock very pessimistically because the $330 strike is far away from the current spot price. However, under the current sentiment regime, $330 is structurally a more feasible target than what Wall Street's risk models suggest.
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