I Gambled on RIMM, Now What?
- Thread starter JTG
- Start date
Calculate the fair value of the option using the implied vol the option closed with yesterday and the price the stock will open. This has to be done 5 mins or less before the open.
Sell at a limit maybe 5% above that price. Get the order in at the open.
If not filled in the opening noise, drop your limit to the fair value using the previous closing implied vol.
If not filled, sell half where you can.
The reason for this is that implied vol collapses after the earnings release. This is especially true for out of the money (luckily, you are not), but best value from the options trade will be had getting out like this. If you hold, you're now trading the stock which is fine... it's just a different trade.
Understand?
Sell at a limit maybe 5% above that price. Get the order in at the open.
If not filled in the opening noise, drop your limit to the fair value using the previous closing implied vol.
If not filled, sell half where you can.
The reason for this is that implied vol collapses after the earnings release. This is especially true for out of the money (luckily, you are not), but best value from the options trade will be had getting out like this. If you hold, you're now trading the stock which is fine... it's just a different trade.
Understand?
Quote from JTG:
OK - So I took a small gamble and bought 10 Jan. 65 Calls today (before earnings), filled at $ 3.30.
Luckily, the stock is up $ 8.00 post market. Here's the question:
How would you manage the position when the market opens tomorrow providing RIMM opens in the $ 71.00 area?
Do you:
1. Take the profit and run on the open? (Thinking "hey, it 's a gift").
2. Wait 15-30 minutes into the session so all shorts have a chance to cover - thus propelling prices higher?
3. Sell 5 lots on the open, and ride the rest?
4. Or? (Your suggestion here).
Thanks in advance for your input!
Cheers and happy Holidays to all.
Howie
<sigh> no. wrong.
suggestions? OP said he made purchase to specifically play the earnings. You saying he should hold out for a higher price? He paid $3.30 in premium for these otm calls. If he holds them until Jan he will lose whatever premium will be in there tomorrow. With time decay if he does nothing and the stock stays here, he could turn a $5-6 winner into a $2.50 winner.
Never hedge. In fact, if you are sure about your position I would buy more. If it goes the wrong way, then sell. Anyway, that's what I would do.
it's a silly suggestion to "hedge" by shorting the stock. read my answer above... that's how i'd play it unless i wanted to play the direction of the stock... but that's a different play tomorrow.
people screw around thinking theyre hedging but they are just complicating the position. for instance... how many deltas are you going to hedge? what are you going to do when you hedge say 80 deltas and then the vol collapses? when are you going to unwind this "hedge"? gamma risk gets silly middle of next month... the whole thing is silly... sell the freakin options don't "hedge" anything.
if the suggestion was driven by the idea that RIMM will open too high that's ok (probably misguided but ok)... but it's a poor answer for the options play.
keep it simple. if you can unwind the trade dont make it more complicated with another leg.
people screw around thinking theyre hedging but they are just complicating the position. for instance... how many deltas are you going to hedge? what are you going to do when you hedge say 80 deltas and then the vol collapses? when are you going to unwind this "hedge"? gamma risk gets silly middle of next month... the whole thing is silly... sell the freakin options don't "hedge" anything.
if the suggestion was driven by the idea that RIMM will open too high that's ok (probably misguided but ok)... but it's a poor answer for the options play.
keep it simple. if you can unwind the trade dont make it more complicated with another leg.