Calm Before the Storm for IBM Stock? Options Market Eyes Volatility Move After Earnings

IBM (NYSE:IBM) stock has been consolidating since July, when it suffered a historic drop after its earnings report. This price action could be the calm before the storm as the company prepares to publish its next results, which should shed more light on its business.

Options Market is Pricing in a Big IBM Stock Move After Earnings

IBM stock tends to be highly volatile whenever it releases its earnings report. This volatility soared in July when it released its second-quarter earnings report, which showed that its business was being affected by the ongoing AI transition. It dropped by 25% on a single day, its worst performance in decades.

The company’s earnings came short of expectations, with Arvind Krishner, the CEO, blaming the shortfall on weakness in its software and infrastructure business. He said that it observed its clienst shifting purchases towards hardware purchases. He said:

"While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization."

Now, the options market is pricing in high volatility this week. The implied volatility has jumped to 75%, more than double the historical volatility of 30%. Positioning suggests that investors have a bullish tilt, with the put/call options ratio being 0.53. Most of the calls are concentrated at a strike price of $240, while puts are at $215. 

Wall Street analysts tracking IBM expect its growth to be relatively weak, a notable thing for a company that should be benefiting from the AI boom. The average estimate is that its revenue will come in at $16.84 billion, up by 3.13% from the same period last year. Its earnings-per-share is expected to be $2.87, a slight increase from $2.65 to $2.85. 

IBM Stock to Experience a Big Move After Earnings

The daily chart shows that IBM shares dropped to $197 in July after its earnings report. Since then, its attempt to rebound has found a strong resistance level of $251. Technically, the stock is forming an island reversal pattern, which happens when an asset consolidates after making a big gap. 

The pattern suggests that the stock may rebound after its earnings. If this happens, it may rebound to $251. A move above that level will point to more gains as bulls attempt to fill the gap formed after its earnings. On the other hand, a weak report may see it drop to $197, its lowest level in July.

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