AboutamonthagowetookalookatIBManddeterminedthatthetechnicalsetup,thecurrentfundamentals,thecommentaryfrompeersandmostimportantlythesentimentmighthavebeensobadthatitcouldbegoodforabounceinthestock?

OnSept9thwhenthestockwas$185IboughtanOctweekly/regular190CallCalendar(below)inanattempttoplayforsomeupwardmovementtowardthestrikeandlooktoowncallsforearningsOct16th(whichfallinOctregularexpiration)。

AcoupleweekslaterwiththestockhangingatmystrikesafteraquickbounceIthoughtthetechnicalsetuplookedabitweakandtookprofitsonthetrade(immediatelybelow)?

Nowwiththestockdown6%inthelastfewweeks,anddownnearly5%ontheyearitcouldbeadecenttimetotakeanotherlookatthestockfromthelongside。

The3yearchartbelowshowsjusthowimportantthe$180technicalsupportlevel(whiteline)isforthestock。

ItsalevelithasnotbeenbelowsinceJan2012),whilethe200daymovingaverage(yellow)upat$198shouldserveasfairlystifftechnicalresistance。

IBM3yrchartfromBloomberg

Sohereisthething,IhavenoconfidencethatIBMisgoingtobeatorevenmeettheirpriorguidance,butonethinghasbeencertaininthisbullrun,pressingoversoldstocksatinflectionpointshasnotbeenawinningstrategy?

Forexample,lookatthe2yearchartofTOLbelow?

Sincemakingnewmulti-yearhighsinthesummerof2012,thestockhasdoneafairlynicejobbouncingoffofthatlevel,evenaseachtimelookedlikeitwasgonnabethebigone?

Wellobviouslythemoreoftenitdoesthis,thegreaterthelikelihoodofadevastatingbreak,butcontinuingtoplayforitwouldnotbestickingwithwhathasworked。

Onalmosteveryoccasionsincelate2012whenTOLapproached$30itbouncedmorethan10%inthefollowingweeks/months,4times。

TOL2yrchartfromBloomberg

IwanttotakeasimilarshottowhatIdidamonthago,nowlookingtocapturealittlepremiuminthisweeksexpirationandlooktosetuptoownanearthemoneycallfornextweeksexpirationthatcapturesearnings。

TRADE?

IBM($182。

55)BoughtOct11th/?

Oct19thExpiration185CallCalendarfor2。

05

-Sold1Oct11th(thisFriday)185callat。

55

-Bought1Oct19th(nextFriday)185for2。

60

Break-EvenonOct4thExpiration:

Profitsaremaximizedat185onOct11thexpiration。

Slightmovesaboveandbelowthatstrikearealsoprofitablewithbigmoveshigherorlowerputtingthestructureatriskoflossesonexpiration。

-Maximumriskis2。

05

NextMove?

Ifstockisnearorbelow$185onthisFridayscloseIwilllooktospreadthenextweekcallsbysellingtheOct19th190calls。

Theriskthisweekisifthestocksellsoffto180orbelowleavingthe185stoughtospreadgoingintonextweek。

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Sept25th?

TradeUpdate$IBM:ClosingOctCallCalendarForAGain

SinceinitiatingthisOct/Octcallcalendar,IBMwentstraighttomystrike,thenupanother$5andnowbackatthestrike?

WithalittlemoretoOct4thweeklyexpiration,the190strikethatIamshort,andalmostamonthtoOct19thexpirationwhatcapturesearningsthestrikethatIamlong,Iamgoingtotaketheprofitonthepositionandlookattheearningseventaswegetcloser。

Action:SoldtoCloseIBM($189。

25)Oct4th/Oct19th190CallSpreadat2。

05fora。

50gain

Whilemymaxriskwas1。

55,a。

50gaininlessthan2weeksbeatsasharpstickintheeye,whileIoriginallyhadtheintentofturningthisintoanevent/fundamentaltradearoundearnings,Inowseeitasquickopportunisticoptionstrade。

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OriginalPostSept9th,2013?

NewTrade$IBM:Youremyboy,Blue!

Forthebetterpartof2013,largecaptech,particularlythosecompanieswithlarge(~50%)revenueexposureoutsidetheU。

S。

andtobusinesseshaveunder-performedthebroadmarket(seeIBM,EMCORCL)?

Whilethesestocksarerelativelycheaponavaluationbasis,theyareexpectedtogetmuchoftheirfuturegrowthfromemergingmarkets,whichuntilrecentlyhaveshownlittleevidenceofapickupineconomicgrowth。

Someoftherecentmanufacturingdata-pointsinEuropeandinChinaspeaktostabilization,whichcouldbeallthatsomeactivemoneymanagersneedtoseeintheirdesperatechaseforperformance?

IfthelongperiodofU。

S。

equityout-performancetotherestofworldiscomingtoandend,thenwewilllikelybegintoseeflowsinthatdirectionpriortoanyoneringingthebell!

OnFridayinthe?

MorningWord,IspoketothispointasitrelatestoIBM:

U。

S。

multi-nationalslikeIBM,(whichisexpectedtogrowearnings10%ayearforthenextfewyears,tradingat10xthatexpectedgrowth)whichhaveseverelylagged(down~4%ytd)couldofferagreatdealmorevalueonarelativebasisasopposedtothosesectorsthathavealreadybenefitedfromtheU。

S。

’srecoveryandarenotlikelytoseeamaterialimpactfromtherestoftheworldcomingoffthemat。

WhiletakingacontrarianviewonwhenthemarketthinksthefundamentalswillturnforIBM,takingaquicklookatthe5yearchartofthestock(below)willnotreallyhelpinanefforttomakeabullishcase:

IBM5yearchartfromBLoomberg

Thestock?

isatafairlyimportantinflectionpoint,earlierthisyearbreakingtheuptrendthathasbeeninplacesincethebottomin2008,andnowsittingononeandhalfyearsupport?

Onalongtermbasisthereisnorealmeaningfultechnicalsupportforanother10%lower。

Solookingdownthelaundrylistofinputsweuse,wehaveaveryreasonablevaluation,apoortechnicalsetup,amediocreatbestfundamentalpositioning,lowimpliedvolatilityandmixedearningsvisibility。

ThenextrealcatalystforthestockwillbetheirQ3earningsonOct16th?