The Difference Between Big Crisis and little crisis

Yo Pit Crazies,

So here’s a name that I don’t usually look at, but will today.

International Business Machines Corp.


Big Blue.

They can’t do anything right.

Here’s how to trade it.

This Ain’t Lou Gerstner’s IBM

I remember way back in my early trading life, the early 1990s, Microsoft (Ticker: MSFT) was killing International Business Machines (Ticker:IBM).

The IBM foray into PCs was great at first, but MSFT ended up making all the dough.

Guys in the IBM pit were near position-limit short calls in IBM because they knew it was going to get near 0 — and it did. The big computer was toast and folks were moving to PCs.

You would think IBM, with the big computer expertise, would be doing better in cloud computing. but they seem to have missed the boat and let MSFT and Amazon (Ticker: AMZN) take the lead.

Now they are in Palookaville with lots of entrenched customers but a lack of new ones and no revenue growth.

IBM six-month chart

It is possible that IBM will cut its huge dividend. Though, since the company has been growing it steadily for the last several years, I think that is unlikely.

For folks who want to take a chance owning the stock, the IBM Nov. 05 128-strike put is $2.20. so that is a 1.5% yield for two weeks. Plus capturing the $1.64 dividend would bring it to near 3.5% for a two-week hold.

If the stock is put, sell the ATM calls. They’re trading around $2, which pushes the yield to 5%.  Not bad for a three-week hold.

Remember the Wheel Trade: Sell the put just before Ex-Dividend, take the stock and sell a call just at the money.

The Rundown

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

The Pro Room was very active yesterday, with some reticence while waiting for tech earnings.

Head Income Trader Bill Griffo brought the bacon and he likes iShares Silver Trust (Ticker: SLV) to $25 by year end.

Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Light Is Red and we expect VIX to make lows after tech earnings next week.

I closed some puts in VTC No. 265 today for 70% gain and the trade is on track for a 10% return to own SPY put flies.  VTC No. 266 is up 5% on the VIX strangle.

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

To Your Trading Success,


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.