Wall Street suffered a reality check during the midweek session, with reports coming in that the U.S. economy contracted for the first time in three years during the beginning of 2025.

This period coincided with a surge of imports arriving ahead of President Donald Trump's tariffs, which landed the GDP in negative territory in the first quarter. While the news pushed market indices into the red, tech giant IBM (NYSE:IBM) eked out a gain.

It could be a sample of potential narratives that may soon materialize into the present realm. While tech will almost certainly be a place where businesses look to make some budget cuts — along with other areas — there's a certain floor when it comes to the broader IT machinery that cannot be touched. Not too long ago, Ritholtz Wealth Management's Josh Brown made a compelling argument about the cybersecurity sector.

Essentially, modern companies can't take the corporate chainsaw to certain digital infrastructural components that keep the entire machinery running. To cut cybersecurity, according to Brown, represents an "out-of-business risk."

Brown pointed to the bankruptcy of 23andMe Holding Co. (OTC:MEHCQ) as an example of the dire consequences of neglecting cybersecurity resilience. The same lesson can be applied to the broader IT machinery, IBM's stronghold. Therefore, even amid the worrying macro environment, IBM stock offers reasonable insulation.

In addition, the company nicknamed Big Blue recently bumped up its regular quarterly cash dividend to $1.68 per share. This increase is scheduled for payment on June 10, 2025, to shareholders on record as of May 9.

Notably, the dividend boost marks the 30th consecutive year the tech giant has raised its dividend. The company has also maintained a streak of uninterrupted payouts since 1916, thus reinforcing the economic resilience narrative.

Potential Demand Swing Incoming for IBM Stock

On surface level, IBM stock appears to represent a technical discount. Relative to its February closing high, the security is down by approximately 9%. At the same time, using price to project future price movements is a haphazard approach. Since price is a scalar, continuous signal, it offers no fundamental meaning.

In other words, price and demand are not the same thing. Price is merely the recording of when demand was exercised and the actual figure could theoretically be anything. In contrast, demand is a defined, discrete event. It's either happening or it's not. There are no half-demand states of existence.

Put another way, for any given trading session, the market makes a choice: it's either a net buyer, in which case demand rises, or it's not a net buyer, in which case supply rises. It's not so much about the magnitude and price point of bullishness that matters, but whether, at a particular point in time, investors saw enough of a reason to place their capital at risk.

For IBM stock, the last 10 weeks have been bearishly dominated, resulting in a "3-7" sequence: three weeks up, seven weeks down, with a negative trajectory across the period. Granted, the one-week upside probability following the 3-7 sequence only mildly favors the bulls at 51.22%.

However, the key with IBM stock is demand resilience. In the past three years, IBM has not been able to print a consecutive 10-week series where down weeks outnumber up weeks. For example, about a year ago, IBM posted a 3-7 sequence. Subsequently, investors responded with a 6-4 and 8-2 sequence before a stalemate 5-5 sequence.

No, obviously, IBM stock is not immune to downside. However, when the pessimism is prolonged, the bulls tend to respond like clockwork.

An Aggressive Play on Big Blue

What's beautiful about IBM stock is that it's a hybrid opportunity.

For those seeking income-generating shelter amid the possible economic storm, Big Blue offers an attractive idea within the tech ecosystem. At the same time, it also offers the potential — with the leverage of multi-leg options strategies — to take small gains and convert them to giant payouts.

Consider the 242.50/245 bull call spread expiring May 16 as a prime example. This transaction involves buying the $242.50 call and simultaneously selling the $245 call, for a net debit paid of $126. Should IBM stock rise through the short strike price of $245 at expiration, the maximum reward is $124, or a payout of over 98%.

The above options strategy is attractive because if IBM stock follows the projected positive pathway over the next three weeks, it should land near the $250 mark. That should provide an extra few bucks of safety margin relative to the short strike price.

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Wednesday, April 30, 2025

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