UPDATE: Plus Bonus Bearish IBM Structure

by Dan June 29, 2011 11:09 am • Commentary

I thought I had this one and frankly I did for a while as the stock traded down to 161.50 earlier in the month…..my critical error in this one was that I was trying to be patient and let the thing play out over time…..When the stock was 162 the spread was worth a little more than 2.00 and after paying 1.30 I thought I wanted to at-least double my money before taking some profits…. Well the stock has rallied 5.5% off of the recent lows and the spread is only worth about .40 with the stock at 170.50….I am going to pull the plug on this one as the market is clearly stabilizing and the thought of a meltdown prior to July expiration is looking increasingly unlikely.

ORIGINAL POST May 25th 2011:

IBM TRADE: stock has massively outperformed all major indexes up 16% ytd….at some point over the next few weeks I believe the market will get hit hard and the weakness that we have seen amongst big tech losers like CSCO, HPQ, MSFT and AMAT will broaden out to names like IBM, ORCL and INTC as the market becomes aware that second half looks much weaker than originally expected…..see my comment regarding TECD yesterday as a potential canary in the coal mine…..

-Technically the chart looks heavy and I think the stock currently has a lot of good news priced into it……I am playing for a move back towards 160 prior to q2 earnings….

[caption id="attachment_2196" align="aligncenter" width="300" caption="6 month IBM chart Provided by "][/caption]

IBM ($167.75)  Buy July 165 / 160 Put Spread for 1.30

-Buy 1 July 165 Put for 3.05 and

-Sell 1 July 160 Put at 1.75

Break-Even on July Expiration:

Upside: above 165 lose 1.30 or less than 1% of the underlying

-btwn 165 and 163.70 lose up to 1.30

-btwn 163.70 and 160 make up to 1.30

-at or below 160 make 3.70