IBM – Calendar Update

by riskreversal December 30, 2016 10:32 am • Trade Updates

On December 6th we looked at the constructive set-up for IBM stock and detailed an alternative to stock that looked to take advantage of an end of the year vol crush by selling a Dec30th call to buy a Feb call of the same strike. Here was the initial trade idea:

*IBM ($160.25) Buy the Dec30/Feb 165 call calendar for 2.40
  • Sell 1 Dec30th 165 call at .80
  • Buy 1 Feb 165 call for 3.20

With the stock now slightly above the 165 strike going on the final day of 2016, the trade is working well. With the stock 165.75, the call calendar is worth about $4.25 vs the initial 2.40 risked. From here, trade management is up to whether that sort of profit is fine to close 2016 or if more defined risk upside is wanted into 2017.

For those looking to keep the bullish defined risk positioning, a roll out and up up the short call makes sense. Right now the Dec30th 165 call can be bought to close and rolled to the Feb 175 call for a slight credit, slightly reducing overall risk. That doesn’t reduce a lot of risk, it mostly just rolls the bullish view out. For those looking to reduce much more risk, the roll can be to the 170 call in February, which reduces risk by about 1.50.

Roll maintaining initial risk (new position would be Feb 165/175 call spread for 2.15, currently worth 4.10)

  • buy to close the Dec30 165 call for 1.00
  • sell to open the Feb 175 call at 1.25

Roll reducing risk (new position Feb 165/170 call spread for 0.65, currently worth 2.40

  • buy to close the Dec30 165 call for 1.00
  • sell to open the Feb 165 call at 2.75

Both those rolls make sense, depending on your view. And we’re happy with the current profits in the position to end the year and we’ll take those and look for a lower entry if it comes.

ACTION – Sold to close the IBM (165.75) Dec30/Feb 165 call calendar at 4.20 (for a 1.80 profit)