IBM Analysis

International Business Machines Corp. (IBM)

Update 11/1/2018: I’ve exited IBM, 15 days before expiration, because of a large loss. The stock dropped after earnings and kept on dropping, and I saw no hope for recovery.

The cost of exitings was a $10.10 debit, or a $331 loss per contract, with shares a $115.80, down $28.00 from entry.

Shares declined by 19.5% over 16 days, or a -444% annual rate. The options position produced a 32.8% loss for a -748% annual rate.

I have entered a short vertical spread on !S, using options that trade for the last time 31 days hence, on Nov. 16. The premium is a $6.79 credit per contract/share and the stock at the time of entry was priced at $143.80.

I decided to enter the trade based on the proximity of an earnings announce, on Wednesday, Oct. 17, before the opening bell.

The profit zone for this position is between $151.79 on the upside and $141.79 on the downside.

Implied volatility stands at 29%, which is 1.6 times the VIX, a measure of the volatility of the S&P 500 index.

IBM’s IV stands higher than 79% of its daily readings over the past year.

The price used for analysis was $143.81.

Premium: $6.79 Expire OTM
IBM-iron fly Strike Odds Delta
Long 155.00 75.0% 23
Break-even 151.79 65.0% 35
Short 145.00 55.0% 47
Short 145.00 45.0% 52
Break-even 141.79 66.0% 33
Long 135.00 87.0% 14

The premium is 68% of the width of the position’s wings.

The risk/reward ratio is 0.5:1, with maximum potential loss of $321 per contract and maximum potential gain of $679 per contract.

The bid/ask spread was 2.2%.

By Tim Bovee, Portland, Oregon, Oct. 16, 2018


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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