IBM Analysis

International Business Machines Corp. (IBM)

Update 10/18/2017: IBM’S earnings came it at $3.30 per share, slightly below the $3.33 Street consensus. Shares shot up by $10.58, and the continued to rise, breaking past the $156.42 resistance level set last June. 

The rise carried the share price beyond the profit zone’s $4.50 in either direction and above the expected move of $4.85 and the maximum post-earns move of the past year, $6.47

Zacks indicators missed the move, showing neutral for the score and an upside surprise for the earnings.

Shares rose by 8.0% over my one-day holding period, or a +2,912% annual rate. The options position produced a 42.6% loss for a -15,538% annual rate.

IBM publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on Oct. 27.

Implied volatility stands at 23%, which is 2.2 times the VIX, a measure of the volatility of the S&P 500 index.

IBM’s IV stands in the 74th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $146.48.

Premium: $4.87 Expire OTM
IBM-iron fly Strike Odds Delta
Calls 155.00 8934.0% 12
Break-even 150.87
Short 146.00 49.0% 53
Short 146.00 51.1% 47
Break-even 141.87
Long 137.00 88.8% 10

The premium is 54.1% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

The zone of profit in the proposed trade covers a $4.50 move either way. The biggest immediate move after each of the past four earnings announcements was $6.47, and the average was $3.64. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.90.

The expected move covering 85% of occurrences is $4.85, or 15 cents beyond the profit zone.

The bid/ask spread is 4.5%.

Decision for My Account

I have entered a position onIBM as described above. The stock at the time of entry was priced at $145.53.

By Tim Bovee, Portland, Oregon, October 17, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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