DailyPlay – Opening Trade (IBM) – July 18, 2023

IBM Bullish Opening Trade Signal

View IBM Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 8 Contracts Aug 18th $135/$145 Call Vertical Spreads @ $2.56 Debit per contract.

Total Risk: This trade has a max risk of $2,048 (8 Contracts x $256) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $256 to select the # shares for your portfolio.

Trend Continuation Signal: This stock has been bullish and is expected to break higher.

1M/6M Trends: Bullish/Bullish

Technical Score: 4/10

OptionsPlay Score: 126

Stop Loss: @ $1.28 Credit (50% loss).

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

As we ramp up earnings season with equities in a full bullish setup and tech overextended, opportunities to enter AI stocks with decent risk/rewards are rare. However, IBM reports this week on Wednesday (PM) and trades at both a reasonable valuation and price with upside potential. IBM’s poor relative performance is a reflection of its failure to capture recent cloud computing trends, but its AI and cloud products are starting to show signs of catching up. Earnings this week could be the catalyst for IBM to start trading closer to the valuations of its faster growing peers. It currently trades at 14.3x forward earnings, which is a massive 40% discount to its group and represents the upside. With IV Rank currently sitting at 35%, options aren’t inexpensive, so I’m inclined to buy an OTM call spread. Buy to Open the Aug $135/145 Call Vertical @ $2.56 Debit. With a hypothetical portfolio of $100,000 we recommend risking 2% of it on this trade, which is 8 Contracts for $2,050 in total risk. Set a stop loss on the vertical spread at 50% of the premium paid, about $1.25 Credit. 

IBM  – Daily