Considering Our Options – $IBM

by CC March 27, 2014 1:38 pm • Commentary

IBM has been making some seriously crazy moves lately and we seem to be getting a second chance to get out of our bearish fly. To recap, we placed a trade on IBM and were initially right but then watched as the stock launched through resistance and made our Fly look like it could be a total loss. Here’s the structure:

TRADE:  IBM ($186.75) Buy the Apr4th 190/180/170 Put Fly for $3.20

– Buy 1 Apr4th 190 Put for $4.95

– Sell 2 Apr4th 180 Puts at $1.00 each ($2.00 total)

– Buy 1 Apr4th Put for $0.25

Break-evens on Apr4th expiration:

Profits: btwn 186.80 and 173.20 make up to 6.80, with max gain of 6.80 at 180

Losses: losses of up to 3.20 btwn 170 & 173.20 and btwn 186.80 & 190 with max loss of 3.20 below 170 or above 190

Yesterday, before reversing, the stock made a new recent high above 195. Today, it’s down near our long 190 strike, which also happens to be pretty significant support:

Screen Shot 2014-03-27 at 11.35.25 AM
1 yr chart from LiveVol Pro

The theta (decay) on this structure is over 10c a day and will increase as we get into next week. We’re gonna give this thing one shot to become a winner and if not, look to close it somewhere near this level where it would be a much better loser (worth about 2 dollars here) than it was yesterday.