I'm retired and have owned IBM for a long time (10 yrs+). I have used call writing (selling covered calls) to supplement the dividend income. Mt Oct 195 calls just expired and I will sell more calls next week. I figure that the bears will try to push the share price down a few more days. After this is over, I will wait for the first price uptick to $175+ and sell $190 calls out to around January 2014. I doubt that we will see $190 before the next earnings report comes out
I take a different angle. I sold 20 Dec 160 covered puts for 1.30 in my IRA and either I make 2,600 by Dec or I'm assigned 2,000 shares at 160. I think IBM will trade in a range of 170-180 until next earnings and boy, they better show some revenue growth or it will be bad for them. Unless there's some big news, like a bigger buyback, or Buffet says he's buying more IBM, or they decide to raise the Div. I just don't see much upside here. Not in the next 30 days or so.
10 long Dec $175 calls
30 short Dec $185 calls
20 long Dec $195 calls
debit = $1.25
max profit $10.00
max loss $1.25
pays $0.015 per day of time decay
10 long Nov $175 calls
30 short Nov $180 calls
20 long Nov $185 calls
debit = $0.30
max profit $5
max loss $0.30
pays $0.016 per day of time decay
i noticed IBM always rise leading to the ex-dividend date in the last 2 years. I guess the short does not want to pay the dividend. After the 20% drop from the high, I am not sure if all the short potions have been covered. 20% is a good reversal point. The short ratio was before the drop. the MACD is down but the shorter trend of last 5 days is up. The momentum and year end rally is in favour of the in the money calls. . Yours strategy will work if it range bound. It is funny that not all fund manager invested like Warren Buffet, IBM has been increaseing dividend in the last 18 years and the last was in April, that shows the confident of the continuous rise of EPS.
Mike, thanks for the reply. I have a q. for you -- in the first option why do you have the 30 short Dec 185$ calls and buy 20 Dec 195$ long ?
I analyzed your suggestion and if the stock goes up above 185$ you will see loses.
Don't you think a regular spread 10 long 175$ 10 short 185$ is better ?
I've been trading options for over 20 years and like to purchase out of the money calls or puts depending on the news. In the case of IBM because of the uncertainty over the turn around that will eventually come I am looking closely at the Jan 17 2015 200 call options currently trading at $4.95. Of course I always dollar cost average just in case.