IBM’s 25% slide puts elevated options premiums in focus

IBM shares dropped about 25% after the company said preliminary second-quarter sales missed Wall Street expectations. For everyday investors, the fallout reached beyond the stock price: the move also pushed attention toward IBM options, where traders were pricing in unusually large future swings, according to CNBC’s Options Action.

IBM fell a little more than $73 to roughly $217 on July 14, according to CNBC. The decline was described by CNBC as the stock’s steepest single-session fall since Jan. 3, 1968.

What triggered the IBM selloff

The immediate cause was IBM’s preliminary second-quarter revenue figure. The company reported sales of $17.2 billion, below Wall Street expectations of $17.9 billion, according to CNBC.

CNBC reported that weakness in IBM’s infrastructure division, where sales fell 7%, weighed on the result. IBM CEO Arvind Krishna said enterprise customers shifted spending away from some of IBM’s traditional products and held cash for hardware, servers and storage because of concerns tied to AI-related supply shortages and potential price increases, according to CNBC.

That explanation matters because IBM sits at the intersection of older enterprise technology and the AI spending boom. If large corporate customers are delaying software or consulting purchases to prepare for infrastructure needs, that can pressure near-term revenue even at companies with long operating histories.

Why options traders are watching IBM

CNBC’s Options Action analysis focused on implied volatility, a measure of how much movement the options market expects from a stock. Higher implied volatility usually makes options more expensive because buyers are paying for the possibility of a wider move.

After a major earnings warning, implied volatility often falls once the news is public. CNBC reported that IBM’s one-month implied volatility instead remained near the 99.6th percentile, above levels seen during several prior market stress periods and below only the 2020 pandemic selloff in the comparison cited.

That setup led CNBC’s Options Action to outline a short strangle using IBM’s Aug. 21, 2026, monthly options: selling the 190 put and the 245 call. A short strangle means a trader sells both a put option below the stock price and a call option above it, collecting premium upfront while betting the stock stays between those strike prices through expiration.

According to CNBC, the trade was priced at about $11.25 per strangle as of the July 14 close. CNBC calculated that as a 5.18% standstill yield relative to IBM’s share price over 38 days.

The same analysis put the downside breakeven at $178.75, about 17.6% below the then-current stock price, and the upside breakeven at $256.25, about 18.1% above it. Breakeven means the level where the premium collected offsets losses from the option position, before considering fees, margin requirements or taxes.

CNBC said the lower breakeven would require IBM to fall another 18% from its post-warning level, while the upper breakeven would require the stock to recover more than half of the one-day drop before August expiration.

The trade structure depends on elevated option premiums fading while IBM’s stock price remains within a wide range. It also carries meaningful risk: selling options can create obligations if the stock moves beyond the strikes, and losses can grow if the move is large. CNBC presented the setup as an options strategy tied to unusual volatility, not as a guaranteed outcome.

This story draws on original reporting from CNBC.