* Indexes up: Dow, S&P 500 0.5 pct, Nasdaq up 0.7 pct
By Ryan Vlastelica
NEW YORK, Sept 24 (Reuters) - Derivative strategists at Goldman Sachs on Wednesday advised clients to buy a near-term straddle on IBM, saying the options market was underestimating the stock’s typical post-earnings volatility.
Goldman suggested buying October $192.50 straddles. Over the past eight quarters, IBM moved an average of 4.6 percent in the week following its report, according to Thomson Reuters data.
Currently, Goldman wrote, the options market is pricing in a move of 2.2 percent, “the lowest level since 2006.” The broker added that sentiment on the chipmaker was bearish, which “could indicate investors are more negatively biased ahead of earnings.” The Dow component reports results on Oct. 16.
In a straddle strategy, an investor will buy both a bullish call option and a bearish put option at the same strike price, betting that a stock will move by a certain amount, rather than in a specific direction.
IBM shares are up about 2 percent in 2014, underperforming the S&P 500’s 7.8 percent advance. The stock dipped 0.2 percent to $191.31 on Wednesday.
Index snapshot at 11:34 EDT:
* S&P 500 was rising 9.7 points, or 0.49 percent.
* Nasdaq Comp was gaining 30.66 points, or 0.68 percent.
* Dow industrials was adding 88.09 points, or 0.52 percent.
* Russell 2000 was adding 7.18 points, or 0.64 percent.
* S&P MidCap was adding 4.5 points, or 0.32 percent.
* S&P SmallCap was gaining 3.83 points, or 0.6 percent.