Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
This is AG here ready for another edition of the Pit Report.
You remember those Super Bowl ads with Watson and AI for IBM a few years ago?
It seems they might matter again.
IBM 120 Day IV with 90 day realized vol
You can make a bullish case (though not overly so) for IBM.
ButI remember IBM in the early 90’s on the Cboe floor as the most shorted stock that year.
Traders would short 1000s of calls as IBM was a one-way train to palookaville. They were right and it took a decade for IBM to grow earnings again after Microsoft Corp (Ticker: MSFT) ate their lunch.
Today, IBM trades at a low vol with a high dividend.
Let’s see what that means.
Big Dividend Stocks Tend to Have lower Implied Vols
The reason is folks just wait for the dividend and write calls.
Also, calls are depressed by the dividend value, puts increased by the dividend value, so calls going into ex-div date get crushed then spring to live post-dividend.
Post-earnings IBM did have the potential to break out but got quashed. See the post-earnings chart below …
IBM One-Month chart with one-day candles
IBM 120-day IV with 90-day realized vol
This is also interesting where longer term vols are getting cheaper.
Note above that 90-day realized is getting back to more normal levels for IBM. It is a low realized vol stock, so it has a tendency to go nowhere for a long period of time.
Strategically, call calendars could work here if the decay is enough in the short contract.
A lot of vol charts look like this.
There is a temptation to buy longer-dated options, but remember VIX is still 17 and close to 50% of historical samples are below that number.
Any long dated options play should be accompanied by VIX puts.
I will hit that topic up in Cap Gains this week.
All while keeping an eye out for the Gamma Bomb here.
AG sig