Watson has Ideas for IBM Earnings

• Posted by Greg Harmon
• on April 18th, 2016

IBM, $IBM, was trending lower from May 2013 and looks like it may have found a bottom finally under 120 in February. Since then it has moved higher, recovering 30% of that down move. The consolidation at the October high into earnings is a well deserved rest. The October gap is playing a role as support as well. A break of this range targets a move to 169.

Into earnings it is sitting on top of the 20 day SMA and seeing the 50 day move higher towards a bullish Golden Cross, up through the 200 day SMA. It has a RSI that is in the bullish zone, while the MACD is level after resetting a bit lower. The Bollinger Bands® have tightened into the event, often a precursor to a move in the price.

There is support lower at 148 and 144.75 followed by 141.25 and 139.60 before 134.50. There is resistance at 153 and 156 followed by 159 and 162 before 165 and 169 then the July high at 174. The reaction to the last 6 earnings reports has been a move of about 4.63% on average or $7.00 making for an expected range of 145 to 159.

The at-the money April 22 Expiry Straddles suggest a similar $7.30 move by Expiry with Implied Volatility at 55% above the May at 26%. Short interest is low at 2.6%. Open interest is focused from 149 to 155 on the Call side, and at 145 and 146 on the Put side, but with some size from there up to 150.

IBM, $IBM

Trade Idea 1: Buy the April 22 Expiry 152.5/155 Call Spread for $1.20.

Trade Idea 2: Buy the April 22 Expiry 152.5/155 and sell the April 22 Expiry 144 Put for free.

Trade Idea 3: Buy the April 22 Expiry/May 155 Call Calendar for 70 cents.

Trade Idea 4: Buy the April 22 Expiry/May 155 Call Calendar and sell the April 22 Expiry 141 Put for free.

Trade Idea 5: Sell the April 22 Expiry 145/155 Strangle for a $3.70 credit.

#1 and #2 give the upside with #2 using leverage and possibly putting you in the stock at 144 on a close below there at Expiry. #3 looks for the upside longer term and #4 adds leverage with a possible entry at 141 should the stock close below there Friday. #4 is profitable on a close from 8.64 to 10.36 at Expiry. #5 is profitable on a close between 141.30 and 158.70 Friday. I prefer #2 or #4.

This is the exact type of analysis given to Premium Users on earnings trades every day.

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