Daily Options Report

That's kind of a sarcastic headline. I know some on TV...and twitter, and some pay sites....never make a mistake. But anyone who pretends they are always right is simply being dishonest. Trade a little and you will have some losers. Write about them somewhere and you're guaranteed to tell the world about it.

It's another way of saying that RIMM trade the other day sucked.

Now I'm not really here to throw trade ideas around, I'm more about the process. So let me go over my thought process behind the trade.

Most every stock has a volatility bid up ahead of an earnings release. That bid up implies a certain magnitude gap move in the stock, You know the volatility will decline after the release, so if you're net selling options, you are betting on whether that decline will offset the move in the stock. If you think options are not bid up high enough, you want to own them. I tend to always look for the other side though. I prefer selling strangles or spreads ahead of earnings and betting against a big move. My experience is that you win more often than you lose that way, but the losses of course are unlimited, so you HAVE to win more often than you lose.

I don't blindly sell though, I want spots where in my opinion, the options assume too big a move. RIMM felt that way heading into the number as it assumed a 10-12% move or so. Of course RIMM has done that before, and more, but that's why the option's priced that way. But in a rather dead volatility backdrop, it felt high. In hindsight it wasn't, though if this is as bad as it gets, you'll win over time doing a bunch of these as RIMM didn't move that far beyond the priced-in range.

Now I changed course and switched from straight strangle sales to spread sales (OTM puts vs OTM calls), but it was more because I had a bunch of after-hours commitments that night and wouldn't have the opportunity to hedge if need be. It didn't change my P&L picture much, if at all, and probably won't change the picture much in general. Owning "wings" basically saves you from having to stop out into extreme strength or weakness, but of course they cost money.

But hey, not here to talk about the past. Except when I talk about the past. So I tweaked a little going forward and put on a sort-of collar and bought OTM puts, shorted OTM calls and bought stock on a ratio, with the intent of buying more stock into further dippage against the extra puts.

Anyway, will likely have spotty attendance tomorrow, but wil chime in if around.