BY MARK SEBASTIAN
April 2, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
AI owns the world. It is NVDA’s world and we all live in it…this is what I hear from people constantly…This week we are not doing NVDA but we are going to take a hard look at an AI stock….
International Business Machines (Ticker: IBM)
IBM is the original play on AI…
The problem is IBM is IBM…rather than realize what they had….they sat on it.
Now they are racing to become relevant.
If IBM had spent more time working on innovation instead of buying stock back IBM would be NVDA…instead…it is an afterthought/
But maybe…just maybe they can fix things.
The good news is IBM is making a lot of money right now…
They produced 7.5 billion dollars over the last 12 months. The revenue is huge at 62 billion dollars.
But here is the long story short…this is a firm that needs to stop listening to consultants and start doing what they are good at.
IBM has always quietly been a consulting firm….
But in the past they could provide you the Computer…the server…and the insight…
When they sold the hardware business they last the 1st two…no…they were not giant profit centers…but they led to more profits everywhere else.
So what now? WatsonX…it’s their AI and is supposed to help business.
If it works…IBM is going to 300…if not…it will stay in the malaise it is currently in.
Worst case near term…a really nice div of 6.63 a year….at a minimum I would buy IBM and put it on a DRIP.
That said…I think there might be a move coming in IBM..check out the implied volatility:
There is going to be a strong move in IBM soon.
I like the stock, I think leadership recognizes the institutional weaknesses and is addressing it.
Near term..that is Licia..long term Buy and put on a drip.
International Business Machines (Ticker: IBM) once the bastion of all things computer has taken a back seat these days to more exciting chip stocks.
In fact it was trading higher, $206 to be exact, in March 2013.
Check out the monthly chart going back to 1988:
The stock traded in the range of $114-$146 from April 2018 – October 2023.
Since then IBM has had a very nice rally.
It gapped up off its earnings report and has pretty much held that level.
In the short term, IBM is holding support here at $189 and looks like it is ready to bounce:
Below there support comes in at $186.60 and $181.60.
Resistance on the upside lies at $192.80 and then $198.73.
Perhaps from there it will relive its heyday at $206.
-Licia
IBM is showing some AI implied volatility
The chart below shows 30 day and 60 day implied volatility (IV). It is clear both of those are trading at 1 year highs. From the analysis above, IBM is also near 1 year highs in stock price coming from $125 last year. IBM has been a good AI stock for me as a stealthy and low volatility trader.
As you can see from the chart, IBM IV dips into the low teens but has not been there in a month. It was a great low volatility buy for my Easy Button program. Right now traders are bidding up option prices, likely into earnings which for the first time in a while have very high expectations.
The Higher IV I want to reduce some cost. Call vertical spreads or diagonal call spreads that still keep the bullish AI hue.
I still own shares and think IBM makes a good put sale on pull backs at these higher IV levels. Call spreads are the most cost effective way to ride the stock higher.
The Option Pit Team…
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Mark Sebastian
Founder & CEO, Option Pit
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