IBM Earnings Trade Ideas Using Options

• Posted by Greg Harmon
• on July 18th, 2011

IBM (ticker: $IBM) reports earnings after the bell today. The chart below shows that it has had a series of moves higher after breaking out of a consolidation range last September. Currently it is in a bull flag between 174 and 178, and is still about $10 from the Measured Move (MM) target of 183 – 185. on the downside there is support at about 171 and 166 followed by 160, a level it has not seen since March. $IBM is one of those stocks that have weekly options so it is worth a look at them for an earnings play.

IBM ($IBM) Daily Chart

As I write this the nearest strike Straddle, the 175’s, is pricing in a 3.4% or $6 move by Friday on the weekly options. You could play the combination of buying the July 22 175/180 Call spread and funding it with a short 170 Put for a cost of 21c if you are willing to own the stock at 170. That is not a bad level. But it does seem that if it drops there is some risk of further downside to 166 or even 160. Looking a bit further out to the August 175/180 Call spread and funding it with a short 160 Put for about 90c as I write this, gives a better entry point and still a shot at over a $4 profit on the Call spread.

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