IBM Corp

IBM looks ready to hit the skids following the bull-trap high recorded on June 19 at  199.99.  The target of the pattern shown is 178.07, and it looks enticing enough that I'll recommend bottom-fishing there. Accordingly, buy two August 180 calls if and when the stock gets within 15 cents of the target.  Stop yourself out if the IBM trades 177.89 or lower.   _______ UPDATE (2:55 a.m. EDT, July 20):  Big Blue has reversed after having gotten no closer to our downside target than 181.85.  This is not only bullish for IBM, but for the stock market as a whole, since the company is a reliable bellwether.  Bulls could nail it now with a print at 197.21, since that's where an impulse leg would be generated on the daily chart. _______ UPDATE (July 25, 10:23 p.m. EDT):  Instead of creating a confidence-inspiring impulse leg with its most recent upthrust, the stock has suspiciously doubled-topped with an external peak at 196.85 recorded in early July. The ersatz rally pattern that has resulted points to 201.85 with a midpoint resistance at 195.02, but because the point B is sausage (see inset, a new chart), we'll have to take those numbers with a grain of salt.

Last week's dip beneath a 194.84 midpoint implies more weakness is likely, presumably to the 191.42 'D' target of the pattern shown. Using camouflage on the 5-minute chart or less, traders should attempt to short any rally that gets within 5-10 cents of the midpoint.  Bottom-fishing at 'D' is also suggested if you are able to reduce theoretical entry risk to 12 cents or less for each round lot traded. _______ UPDATE (May 31, 12:46 a.m. EDT):  The whoopee cushion price action this week has put into play a lower target at 188.03 that would become a lead-pipe cinch if the stock closes beneath its p sibling at 193.05. _______ UPDATE (June 3, 5:10 p.m. EDT): The low of Friday's nasty selloff came within 57 cents of the 188.03 target flagged above. It remains viable and can be used by Pivoteers for cautious bottom-fishing, but if the hidden support fails we'll be looking at more slippage over the near term to at least 182.36 (240m, A=208.92 on 5/3, and B=193.20.) _______ UPDATE (June 7, 9:59 a.m. EDT):  Off a low of 187.00, Big Blue has launched into a take-no-prisoners short squeeze marked by gap-up openings on the last two days. The bigger picture still looks bearish and will remain so until such time as buyers push this vehicle to 198.30.  For the moment, however, we'll back away.

We have only praise for IBM, a corporate giant that has long shown a knack for doing things right.  Technically, however, the stock's spectacular run faces a potentially daunting challenge not far above in the form of a 220.48 Hidden Pivot resistance, or perhaps at 226.76 if any higher.  Long-term investors should consider covered-writing their shares if Big Blue approaches the target range.  More immediately, with 13 points of short-term upside potential, camouflageurs should look to leverage any subtle opportunities that arise to get long. _______ UPDATE (April 5): Having achieved no higher than 210.69, IBM went bearishly impulsive Wednesday with a gap-down opening on the hourly chart. Not very pretty. The bigger picture is still bullish, but this week's miserable price action should be regarded as a shot across the bow.

We hold the August 175-170 put spread twice for a 0.05 debit and are also long the 170-175 call spread twice for an effective credit of 0.65 each. We arrived at this position by buying the call spread twice for 1.00 when we already held two August 175 calls. We were able to reshort the August 175 calls later in the day for 1.65, giving us the $5 vertical call spread for a 0.65 CREDIT. We stand to make as much as $1120 in theory if IBM is trading 170 or above at expiration, but no matter where the stock is trading, our minimum theoretical gain would be $990. We've worked hard to time the swings for good prices on all of the options we either bought or sold, so no further action will be required.

We hold the August 175-170 put spread twice for a 0.05 debit -- and now two August 175 calls acquired yesterday for 1.60. They are of little concern, however, since our put spread will only increase in value if a weak IBM causes the calls to fall. For now, offer the put spreads to close for 4.00 with 0.20 of discretion. For the order to fill, the August 170-175 call spread would have to be trading for around 1.00. (Note: If you can buy the call spread at that price, I'd suggest doing so instead of trying to close out the puts. This would effectively leave us with no position in the August 175 calls, but it won't be terribly risky to leave short 170s uncovered for a short while.  In any event, if there are changes to be made, I'll signal via an intraday alert.) _______ UPDATE (4:04 p.m. EDT):  Until I've heard from a few subscribers, I'll tentatively record an opening purchase of two August 170-175 call spreads for 1.00.  This shouldn't have been too difficult, since the spread was do-able for as little as 0.87 when the calls were hitting bottom.  Since we were long two August 175 calls in addition to the puts, we are now long two puts spreads (for a 0.05 debit) and long two August 170 calls. This will allow us to short two August 175 calls without risk, and whatever we receive as premium will be "gravy" on top of the $790 profit we have effectively "locked in" on the put spreads.  Accordingly, and assuming your position matches the one I've detailed, you should short two September 175 calls at will.  They are currently trading for around 1.75.

We hold the August 175-170 put spread twice for a 0.05 debit.  One easy way to "cover" the spread is to buy two offsetting August 170-175 call spreads. Let's start by trying to buy an August 170 call today for $170 or less.  If we're successful, the worst we can do at expiration would be to make $325 per spread, or $650 on the position. This tactic will leave us with two September 175 calls to short if and when the stock rallies.  The premium we receive for them would boost the $325 gain on the spread by the amount of the sale.  You can take 0.15 of discretion on the bid for August 170 calls. ______ UPDATE (3:13 p.m. ): With a Hidden Pivot bottom in sight, I couldn't resist buying some Sep 175 calls even though they only partially hedge our put spreads rather than offset them.  We acquired the calls for 1.60 when IBM was near its so far intraday low of 166.52. They are currently trading for around 2.35, and I'll suggest for now that you do nothing further.

We hold the August 175-170 put spread twice for a 0.05 debit.  That means the most we can lose is $5 per spread, or $10 total, while we stand to gain as much as $495 per spread if the stock is trading 170 or lower when the options expire on August 19.  Although I'd like to close out one of the spreads today for around $260, the gap between bid and asked for the puts is so wide that a less-than-stellar execution could cost us as much as $25 per spread.  If you can get the spread off at that price without having to leg it, that's what I'll suggest.  Please let me know via e-mail or in the chat room, though, since it will give me a better idea of the capabilities of those who are trading my option recommendations.  Otherwise, we'll attempt to leg out of half the position, buying an Auggie 170 put to close if the opportunity presents itself.  Stay tuned for an intraday alert!  Shortly before 4 a.m., the stock was approaching a Hidden Pivot support at 170.34.  I hesitate to suggest bottom-fishing our way out of the spread at that price, though, because it is so close to the 170.63 launching pad whence Big Blue surged to its 185.76 high. My reasoning is that a breach of 170.63 would likely run enough stops to take it below the 170.34 Hidden Pivot. _______ UPDATE (1:56 p.m. EDT):  We've done nothing officially yet, although the spread could have been exited for as much as $350 this morning when IBM was getting bombed. For the record -- and I am not proud to be bringing you this fact belatedly, when it will do you no good -- an easy way to have effectively "covered" the put spread would

IBM plunged more than $5 yesterday after springing a nasty trap on bulls on the opening bar. It worked out perfectly for us, though, because we were able to short two August 170 puts for 1.15 -- slightly less than we paid a while back for two August 175 puts when the stock was trading near its all-time high, 185.63.  The net result is a bearish position that can make us as much as $1000 if we are right but cost us no more than $10 if we are wrong.  In effect, we are getting 100-to-1 odds against the stock's sinking to $170 or lower by August 19.  The cherry on top is that we stand to make $200 per point at expiration for each point IBM is trading below $175 -- just 2.8% below current levels.  This is the only way to play put options, as far as I'm concerned, since no retail customer I have met in nearly 40 years of option trading has made amy real money buying puts.  Better to leg into positions that have almost no-risk and plenty of upside. Now we can forget about it and relax. In the meantime, I will continue to look for trades that even novices can do that have the potential to pay for the cost of an annual subscription to Rick's Picks. Want to learn how to do this trick yourself? Click here for a free trial subscription to Rick's Picks.

We hold two August 175 puts acquired for 1.20 near the so-far top of one of the most manic rallies in this stock's illustrious history.  This is a speculative play, akin to yelling "Stop!" as a speeding freight train bears down on us. That said, the pattern that produced the target we've shorted is sufficiently compelling to suggest we're aboard near 'a' top if not 'the' top.  Do nothing further for now but stay tuned, since we'll want to short some puts of a lower strike against the ones we own if the stock corrects sharply. Please note  as well that 187.55 is possible before the stock turns lower. That is the 'D' target of a pattern less significant than the one yielding the original one at 183.35 (see chart), and its attainment would represent a minor-trend extension of a major trend as sometimes occurs. _____ UPDATE (12:12 p.m. EDT): With IBM getting butchered today off the bull-trap high  it achieved Sunday night on word of a budget "deal," I'll recommend shorting an August 170 put at-the-market for each August 175 put you hold. This will give us a $5 vertical put spread for nothing, or close to it.