Premium Earnings 10-17-17: IBM and Abbott Labs

• Posted by Greg Harmon
• on October 17th, 2017

Two names today, one that reports after the close tonight, IBM, $IBM, and one tomorrow morning, Abbott Laboratories, $ABT.

IBM, $IBM

IBM, $IBM, started moving lower in February from its most recent top. It gapped down on the earnings report in April and continued lower to a consolidation zone. It broke that bear flag consolidation following another poorly received report in July and found a bottom in August. It has been rising in a channel (another bear flag?) ever since. Into earnings it is falling to the bottom of the channel with the RSI rolling over in the bullish zone, and the MACD crossing down. There is support lower at 145.20 and 142.30 then 140. There is resistance above at 148.75 and 150.25 then 152.50 and 154.35 then 156. The reaction to the last 6 earnings reports has been a move of about 3.42% on average or $5.10 making for an expected range of 143.50 to 153.75. The at-the money October Straddles suggest a similar $5.45 move by Expiry with Implied Volatility at 49% above the November at 19%. Short interest is low at 2.2%. Open interest is biggest at 140 and 145 on the Put side. On the Call side it is also big there and at 150 and 155.

Trade Idea 1: Buy the October 145/143-140 1×2 Put Spread for 30 cents.

Trade Idea 2: Buy the October 147/150 Call Spread ($1.25) and sell the October 140 Put for 75 cents.

Trade Idea 3: Buy the October/November 150 Call Calendar ($0.28) and sell the October 140 Put for a 20 cent credit.

Trade Idea 4: Sell the October 140/155 Strangle for a $0.82 credit.

#1 gives the downside with leverage and a possible entry at 140. #2 and #3 give the upside using leverage and may put you in the stock at 140. #4 is profitable on a close from 139.18 to 155.82 at Expiry. I prefer #3 or #4.

Abbott Laboratories, $ABT

Abbott Laboratories, $ABT, started higher in January and has made a series of higher highs and higher lows ever since. It has been getting steeper since August and into earnings it is holding at highs with the RSI bullish and the MACD turning down. There is support lower at 54.25 and 53 then 51.30 and 50 before 48. There is no resistance above at 55.50. The reaction to the last 6 earnings reports has been a move of about 2.45% on average or $1.35 making for an expected range of 53.50 to 56.15. The at-the money October Straddles suggest a larger $1.60 move by Expiry with Implied Volatility at 38% above the November at 19%. Short interest is low under 1%. Open interest is focused from 51.50 to 53.50 on the Put side. On the Call side it is focused from 55 to 55.50 and then is large again at 52.50.

Trade Idea 1: Buy the October 54.5/53.5 1×2 Put Spread for free.

Trade Idea 2: Buy the November 55/October 55.5 Call Calendar ($0.70) and sell the October 53 Put for 50 cents.

Trade Idea 3: Buy the October 55/55.5 Call Spread ($0.23) and sell the October 53 Put for 5 cents.

Trade Idea 5: Sell the October 53/55.5 Strangle for a $0.69 credit.

#1 gives the downside with leverage and offering a potential entry at 53.50. #2 and #3 give the upside and a possible entry at 53. #4 is profitable on a close between 52.31 to 56.19 Friday. I prefer #1.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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