Given the recent price action, is it time to buy the dip in IBM?
IBM got completely destroyed yesterday. ?The stock erased a month of gains in a day on what have been predictably bad earnings. ?But, given the recent price action, is it time to ‘Buy the dip?’ ?The answer is YES, but not the dip in the stock (not on any level).
Given what we know about IBM price action after earnings, ?here is what we know:
1. ?The stock is probably going to drop more
2. ?The option prices are probalby over sold
When I think a stock is going to go down AND I think the IV is too low, ?you know what I like to trade? ?The answer is I like to buy the dip, by buying puts in IBM as they are probably too cheap.
The Trade:
The July contract is dirt cheap as ATM puts cost about 2.5% of the underlying. ?I think the July 140 puts are a steal given IBM’s crapulance.