Oct 2021: IBM $125 – $130 Bull Call Spread | Mean Reversion Trading Using Options

Oct 2021: IBM $125 – $130 Bull Call Spread

Stock

IBM

Trade Structure

$125-$130 Call Spread

Trade Date

10/22/2021

Price Paid

$250

Expiration Days

11/19/2021

After 6 weeks of back to back winners, a losing trade

We are on week 6 of back to back winning trades and so far where we literally had 100% winners every week. Things are coming back to reality as markets stabilize here and IBM is the first losing trade to show up (IBM expires on week 7)

Winners | Mean Reversion Trading Using Options

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

Look at the long nasty red candle that appeared after IBM announced their earnings. This is an example of where I wait a day before entering a trade. If you know anything about price/action, a red full bodied candle represents a ton of selling pressure. The next day a DOJI like candle appeared in addition to DI- and RSI all flattening out which prompted me to take this trade.

IBM_125_130_CallSpreadOpen | Mean Reversion Trading Using Options

Trade Selection Criteria

Overall market movement

This is a post-earnings trade. The individual stock’s price movement carries more weight for these trades as compared to the overall market movement.

N/A

No Earnings or Significant News

This is a post earnings trade and earnings were announced before market open

CHECK

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside Keltner Channels

CHECK

RSI Analysis

Trade was taken purely based on price/action. But RSI is flattening out after entering oversold zone.

CHECK

ADX Analysis

Trade was taken purely based on price/action, but DI- is also flattening out confirming my bias.

CHECK

Trade Analysis

IBM initially started recovering and started going in my direction. It hovered in between my strikes for the majority of this trade. However, IBM's spinoff into KD (new company) caused both IBM and KD's stocks to gap down and destroyed this trade. Since, IBM is a low ATR stock, the chances of it coming back and becoming a winner are pretty low, so I decided to exercise the 50% loss rule and cut this trade at 48% loss.