Last article I wrote on International Business Machines (IBM), I was watching for a pullback on the stock and created a short term income strategy with a Bear Put Spread. The stock was trading at 204.98. I saw a trading zone developing. Here was the original trade:
The Options Play
- Buy a July 2012 put with a 200 strike (priced at $5.10)
- Sell a July 2012 put with a 195 strike (prices at $3.50)
- Net Debit to Start: $1.60
- Maximum Profit: $3.40
I made mention of macro-economic signs in the world that I thought supported the pullback I was looking for. Here is what I originally wrote:
"… it seems the world economy might be slowing again; Europe is struggling again with both Great Britain and Spain in recessions; China has showed signs of slowing its economic growth and unemployment statistics are not the best. These signs support the idea that a market slowdown is very likely to occur very soon."
The pullback did occur but now reversing the trade, I made a 50% profit.
IBM is presently trading at 194.62 and I reversed the trade.
- Sold July 200- sell $8.85
- Bought July 195- buy $6.45
- $8.85 - $6.45= $2.40 profit
- ($2.40 profit - $1.60 original debt= $0.80 profit per trade
- (ROI- 50%)
I wonder if IBM is in a short term bearish trend. IBM's growth market includes India, China, Latin America, West Asia and Africa. This portion of the market gave IBM a 22% growth rate and the first quarter of this year, revenue for a lot of this region grew by 19%. So the company is growing but as we have all read at some point, the global economy has slowed down and it is having a bearish affect upon everyone.
I reiterate as I did my last article. I believe IBM is a good long term investment but will continue short term in this bearish pattern. There are many opportunities to capture short term profits with companies like IBM. This is but one example.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.