Get Paid to Trade International Business Machines Corp. Stock

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Even without the volatility from the earnings report, International Business Machines Corp. (NYSE:IBM) was foretelling the coming of a sizable move in IBM stock. It had been setting higher lows knocking on resistance levels around $148-per-share.

Get Paid to Trade International Business Machines Corp. Stock

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Once the bulls overcome the resistance, they tend to overshoot.

Technically IBM stock will fill the open gap it left as it fell on its last earnings report back in July. Under normal circumstances, I am not one to chase rallies.

This is especially true in IBM’s case because I’ve long stated my dislike of its fundamentals. And by this, I don’t mean the financial metrics: the company’s stock sells at a price-to-earnings of 12x, which is low in absolute terms. Rather, it’s the business prospects that have been terrible so far.

Management has done a horrible job at adapting to the new tech world. Compared to the job that the Microsoft Corporation (NASDAQ:MSFT) team has done and it is clear that IBM has under-performed. I do have to admit that the message from this earnings report does bring hope for the turn.

Even though I’m not chasing higher, I’m not shorting it either. Today, I merely want to make a bullish short-term bet on the price action in IBM stock. I can do this using options where I can build plenty of room for error. I am not one to risk $150-per-share at face value with no buffer zone, especially when I don’t believe in the company.

This is not the same as blessing higher prices. I don’t even need a rally to profit. In fact, it can fall over 10% from here and I would still retain maximum gains.


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Expectations, are very important in determining price action. And experts on Wall Street still have not given up on the company.

It is currently trading about 5% below the average price target. This leaves a lot of upside expectations from analysts. However, IBM has been a serial heart-breaker to those long the stock. That’s why I can only bet on the short-term support, not the upside potential.

Bottom Line on IBM Stock

And, one high-profile investor, Warren Buffett has already exited half of his position. I expect that he will exit the rest eventually. This is a headline risk that could cost me grief. I have to be ready to own the shares if then.

The Bet: Sell the IBM Jan $130 naked put for $1 to open. Here, I have a 90% theoretical chance of winning. But if the price falls below my strike, I would accrue losses below $129.

Selling naked puts carries big risk, especially in a stock as expensive as IBM. For those who want to mitigate it, they can sell a spread instead.

The Alternate Bet: Sell the IBM Jan $130/$125 credit put spread, which can deliver 10% yield. Both trades have the same odds of winning.

Ultimately, regardless of how careful I am, investing in stocks is fraught with danger, so I never risk more than I am willing to lose

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/get-paid-to-trade-international-business-machines-corp-stock/.

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