When Brilliant Ideas Go Bad

• Posted by Adam Warner
• on September 25th, 2009

Also titled, when mediocre ideas go mediocre, or Let’s all switch to IPhones.

If/when I slap on an earnings volatility play where I just sell, I try to maintain some discipline. You have some cushion in that you now the volatility will get clubbed, so you’ll win up to a certain move in the stock. But beyond that threshhold, you lose. So if it goes below (above) that threshold I like to sell (buy) small and then  hope I’m wrong. If the stock trade wasted money, I’m probably now a winner on the options.

I bring this up because we had RIMM yesterday. I realized I would not be here for the beginning of the after hours trade so changed course with my strangle sale and bought some “wings” and turned it into an Iron Condor sale. As it turned out it didn’t matter as RIMM was down about 12% after the bell, so probably a modest loser on either the strangle or the Condor.

My theory on earnings season is that numbers always beat, and guidance is always (wink wink) less than the most optimistic hoped for so as to set up the cosmic beat next cycle. So the reaction is more just a measure of the market’s pulse. After a month of pretty much straight up, RIMM found a way to report about 1.2 days into a selloff. So does RIMM tell us we have a lot of good news built in around the street and will see some dips on the numbers, or is it just a quirk of bad timing. I’m inclined to think the latter for now, but we’ll see.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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