Cheap Options on IBM

BY ANDREW GIOVINAZZI

April 2, 2024

Yo Pit Crazies,

When I’m trading, I get the MOST excited about cheap options that have the HIGHEST chance to explode in value. The key is knowing where to look. The feature of cheap options that makes them move is known as GAMMA (it’s one of the option Greeks). Just think of Gamma as the accelerator button.

On a scale of 1 to 10, 1 being low/no gamma and 10 being “TO THE MOON” gamma, I can rate expected option performance.

I’m going to be using my Gamma Rating System repeatedly for Option Pit Exclusive readers, so pay attention to this. It can help you find and follow the BEST cheap options opportunities with me, which is a perk of this newsletter ONLY.

Options with relatively cheap implied volatility have “TO THE MOON” gamma.

In the last few weeks in Capitol Gains and The Ticker Highlight Show, Frank, Licia and I have been talking about International Business Machines Inc (Ticker: IBM). This is a stealthy AI stock that I grabbed in early 2023 and kept holding on – even til now. Tips like that are exactly what you can start to expect as an Option Pit Exclusive reader (if you had been one back in early 2023).

Here’s a chart of the implied volatility of IBM.

The 60 day IV is in yellow, and the 90 day IV is in red. You can see both spiking up SIGNIFICANTLY at the end of this chart.

At first glance, most people would think the implied volatility of IBM is WAY too expensive… and they’re not wrong.

But I’ve found some cheap options headed into earnings, because as a pro trader I know where to look.

That’s why I’m giving IBM a Gamma Scale Rating of 7.

I Found A Secret “Gamma Hotspot” On Option Expiring Just Before Earnings

The graphic below shows implied volatility (IV) per a term called SIGMA. Note the IVs are MUCH LESS on the Apr12 and Apr19 options. Those are the expirations just before earnings.

Many times, options will trade cheaply on the “off cycle” but the stock will still run into the earnings expectations. Thus… explosion potential.

That’s why I give these a 7 out of 10 on my Gamma Ratings Scale… because of the low levels for the options prices on these particular dates. It is not the bottom for weekly options, but it is dang close. Just a 1 to 2% move in the stock over 3 days and calls in IBM will pay nicely.

We do this analysis every week in the Trading Desk and Mark and Licia look for explosive daily options moves in 0DTE – we’re running a special on that right now, you can join here.

To Your Trading Success,

-AG