If you think that the outcome of the earnings publication, along with the outlook for the coming quarter, might have a negative impact on the price of IBM stock, in the coming days, then you could consider a bearish credit call spread with nearby expiration.
This strategy involves selling a call option at a certain strike price and buying another call option at a higher strike price. Both options have the same expiration date. This strategy is used when the trader expects the underlying stock to fall moderately within a certain range (staying below the lower strike)
- Buy to Open IBM 21-Jul-23 139 Call
- Sell to Open IBM 21-Jul-23 134 Call
This is a Bearish Credit Call Spread on IBM with an expiration date of July 21st, 2023. Here's a breakdown of the trade:
1. Strategy: A Bearish Credit Call Spread is a bearish strategy that involves buying a call option and selling another call option with a lower strike price on the same underlying asset and with the same expiration date. This strategy is used when the trader expects a moderate decline in the price of the underlying asset.
2. Trade Setup: In this case, the trader is buying to open a call option on IBM with a strike price of $139 and selling to open a call option with a strike price of $134. Both options expire on July 21st, 2023.
3. Premium and Risk: The trader is receiving a net premium of $1.57 per share (approx. the difference between the mid prices of the two options), for a credit of $157 (since each contract represents 100 shares). This is also the maximum profit of the trade. The maximum risk is $343, which is the difference between the strike prices ($5) minus the net premium received ($1.57), multiplied by 100.
4. Breakeven Point: The breakeven point at expiration is $135.57, which is the lower strike price plus the net premium received.
5. Probability of Profit (POP): The estimated POP is 52.03%. This is a rough estimate of the chance that the trade will be profitable at expiration, based on the position's delta.
6. Implied Volatility (IV) Rank: The IV Rank is 33.64%, which is above 20%.
7. Days to Expiration (DTE): There are 2 days left until the options expire.