IBM Analysis

International Business Machines Corp. (IBM)

Update 5/15/2017: IBM gapped down sharply immediately after earnings were published and did it again 12 trading days later, placing the position squarely in the loss territory. As expiration approached I exited for a $14.93 debit.

Shares declined by 11.4% over 27 days, or a -154% annual rate. The options position produced a 52.2% loss on debit for a -706% annual rate.

IBM publishes earnings on Tuesday after the closing bell.

I shall use the MAY series of options, which trades for the last time 31 days hence, on May 19.

Implied volatility stands at 21%, which is 1.5 times the VIX, a measure of the volatility of the S&P 500 index.

IBM’s IV stands in the 46th percentile of its annual range and the 96th percentile of its most recent broad movement.

The price used for analysis was $171.14.

Premium: $7.13 Expire OTM  
IBM-iron fly Strike Odds Delta
Long 185.00 94.0% 7
Break-even 177.13
Short 170.00 46l.6% 55
Short 170.00 51.7% 46
Break-even 162.87
Long 155.00 90.7% 8

The premium is 48% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered a position on IBM as described above. The stock at the time of entry was priced at $171.22.

By Tim Bovee, Portland, Oregon, April 18, 2017

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