I Gambled on RIMM, Now What?

After taking into account options expiration day, and that this is a pure gift, I took the house's money and ran.

Additionally, after reviewing other recent earning suprises, it seems I was going to lose some premium due to contraction of volatility.

I initially sold 5 lots at $ 7.50 and just didnt like the way RIMM was trading. So, I offered the balance at $ 7.50 also and got filled. At the moment, it looks like the right thing. Then again, now that I liquidated, we'll probably see this option close today at $ 9.00. :)

Helpful site if anyone finds themselves in a similar situation:
http://www.ivolatility.com/calc/?ticker=rimm

Thank you all for your input. I greatly appreciate it!

All best to all,
Howie
:)
 
Quote from JTG:

After taking into account options expiration day, and that this is a pure gift, I took the house's money and ran.

Additionally, after reviewing other recent earning suprises, it seems I was going to lose some premium due to contraction of volatility.

I initially sold 5 lots at $ 7.50 and just didnt like the way RIMM was trading. So, I offered the balance at $ 7.50 also and got filled. At the moment, it looks like the right thing. Then again, now that I liquidated, we'll probably see this option close today at $ 9.00. :)

Helpful site if anyone finds themselves in a similar situation:
http://www.ivolatility.com/calc/?ticker=rimm

Thank you all for your input. I greatly appreciate it!

All best to all,
Howie
:)
More...

Nice trade!
 
Well, I will revisit my suggestion to sell a Jan call as a hedge, since hindsight is a wonderful educator:

It is 7:38PT and currently the Jan10 70C is trading at $3.05/$3.15.

So let's say we sell the 70C:

Our 3 scenarios at expiration become:

1) <65 => Lose on long, keep the short:
P/L = -$3.30 + $3.05 = -$0.25.

2) 65<x<70 => long goes ITM, short expires:
P/L = -$3.30 + $3.05 + Close-65.
Max profit = $5.25

3) 70<x => both go ITM so your max profit is same as #2.

At the moment, the gap has filled about 1/3 of the way.
 
Quote from TheGoonior:


:::::
At the moment, the gap has filled about 1/3 of the way.
More...

Here is the Daily RIMM Gap Chart (Gap > $1.5) filled/unfilled gaps.

attachment.php


regards,
Suri
 
Yes I do trade for a living, and yes I trade a lot of options. Your rudeness is misplaced.

Of course this is not a vol trade, but the issue is that the OP bought an option with inflated implied vol before earnings. (A silly thing to do btw.)

He got a gift.

From an execution standpoint, whenever you have anything on that is better than expected the smart thing is to offer it out higher than you think you can get filled, then join the offer, then penny the offer, then hit the bid. That is the correct course of action and that is what I was advising. Using today's open price and yesterday's implied vol gave you an optimistic price, which in these circumstances is filled much more often than you would think in the opening noise.

You're counting on the opening noise -- the public recklessly paying offers and hitting bids (which is EXACTLY THE OPPOSITE of the advice i gave the OP) and maybe someone will take my crazy offer as part of a spread or to hedge some risk in their book.

For a new trader complicating the trade is never the right thing. It is obvious that OP is a newer trader, which is fine. I don't understand the tone and rudeness of your post. I have done literally thousands of option trades and know a bit of what I'm talking about.

Quote from dhpar:

ok. i spent my time with your idiotic advise only because your handle is old - but now i see the time was wasted because you even can't read english.

everybody knows what happens to vol - but that's not the point here. the fact that someone decides to play earnings means that the vol decrease must be incorporated in risk/reward before the trade is taken. there is nothing you can do with it after the earnings. and most importantly vol is of second order here anyway - you seem not to get it.

out.
More...
 
Who's the idiot that can't read English? I said calculate your price before the open based on where it will open. I said nothing about unwinding after hours.

Also, my advice was to take half off the table first thing on the open and I gave the OP specific advice on how to get the best possible fill.

WTF is your problem dhpar? How did that confuse you?

Quote from dhpar:

but you CAN'T unwind this trade AH!


on the rest; are you sane? what is complicated on trading the underlying when you trade options?
do you trade for living of for institution? anybody trading for living would take some money off the table righ away.
More...
 
Quote from Tide31:

What happened to the cereal thread from last night from Jeanne44? That was some of my best work on ET.

The 9 month low was $59.60. You must have paid $2.60 for these with a 57 vol just before announcement with stock at $63 assuming Jan expiration? They disappointed last Q. You would have to think if they were going to do that again they would have come out with some mid-quarter guidance. Investors don't like back to back surprises in one direction. As we learned from the other RIMM guy that bot Jan 65 calls at $3.30 ($63 stock px), with the stock at $71 he got $7.50. $8 move on the stock netted him $4.20. The vols hence premium get knocked way down once the news is out.

So if you were right and the stock sold off a whopping 10% to $57 from $63, with the vol dropping to 39 you would have gotten $4.25.

I am not bashing you in hindsight, just put a crease in the brain about risk/reward. Risk $2.60 on the hope that they announce noone is going to use a pda anymore? The way option pro's make money is in shorting those to you and shorting stock. Noone really made money as it works out. The MM or whomever sold you these would have used a .34 delta then. Assuming the options are now about $.25 and he unwinds, he made $187,000 off of you and lost $185,000 short the stock with it at $70.

Amazing how everyone thinks these are rigged like you said in your OP. These prices are calculated thru and thru using a fairly simple model. Next time you go to take a shot, be sure to use something like what I have included below and work out scenarios on paper with volatility assumptions before and after and then see what you think is the best 'gamble'.

-T


Bookmark this good Option Price Calculator
More...

Here is a way to work out those prices before like previous poster suggested. We were discussing another RIMM guy that took the opposite bet of you in chit chat. "My wife is going to kill me, I blew my account on RIMM" He bot the Jan 60 puts.
 
You must log in or register to reply here.
Back
Top