It looks like option traders are getting worried about IBM - at least based on how the IBM VIX has been rising lately.
The IBM VIX (VXIBM) is like the regular CBOE VIX except that it measures implied volatility for just this one stock. Here's a chart that shows IBM's price along with the IBM VIX and the regular VIX.
IBM is reporting its earnings this week, so the high implied volatility isn't unusual, but what's striking is the large spread that's developed between the IBM VIX and the regular VIX
This high implied volatility pumps up option prices. For example as of Monday's close, an at-the-money straddle expiring in August (33 days) cost about $10.50. A month ago the same type of straddle with 33 days until expiration was only $9.15 - about 12% less.
So if you're thinking of selling options, calls against long positions or perhaps put options to establish a long position, you might want to take advantage of this higher volatility. But I think there may be reason for concern.
IBM's share price seems vulnerable to a pullback if anything smacks of disappointment in the company's report. Here' s a look at how the stock has traded against its trailing 12-month earnings since early 2010:
The stock traded at nearly 16 times earnings back in April. That 12X level which has represented a two-year low is now around $160 per share.
As for any dividend yield support, you can see that the stock traded with a yield of around 2% back in the summer of 2010. Today that level is at $170 per share.
Based on this, I see the $160 to $170 levels as good entry points if you're looking to buy the stock.
IBM is a good company with an excellent dividend record, but it was getting a bit overvalued as it was cruising through the $200 area last April.