RIMM

[tonik]

RIMM is going to announce earnings thursday and friday is expiry day so Implied volatility is going to drop insanely from 300 to 0 on friday was thinking of trying a play here , by selling OTM puts or calls thursday before the earnings.

So as far as i see i can either buy a delta neutral position and hope that the price doesn't change much or try a straddle or strangle and hope it does change alot. Or any other ideas on what would be a good strategy.

Or any words of warning from someone here am i playing with fire? Propably will just try something paper trading .

I did buy a straddle last friday on RIMM knowing volatility would rise during the weekend and it did made some nice profits in 3 days holding.

ToniK

[optionpundit]

RIMM is going to announce earnings thursday and friday is expiry day so Implied volatility is going to drop insanely from 300 to 0 on friday was thinking of trying a play here , by selling OTM puts or calls thursday before the earnings.

So as far as i see i can either buy a delta neutral position and hope that the price doesn't change much or try a straddle or strangle and hope it does change alot. Or any other ideas on what would be a good strategy.

Or any words of warning from someone here am i playing with fire? Propably will just try something paper trading .

I did buy a straddle last friday on RIMM knowing volatility would rise during the weekend and it did made some nice profits in 3 days holding.

ToniK

I think there is an opportunity to play this one as speculative play. I am analyzing it and will post my thoughts later today.

[optionpundit]

RIMM is going to announce earnings thursday and friday is expiry day so Implied volatility is going to drop insanely from 300 to 0 on friday was thinking of trying a play here , by selling OTM puts or calls thursday before the earnings.

So as far as i see i can either buy a delta neutral position and hope that the price doesn't change much or try a straddle or strangle and hope it does change alot. Or any other ideas on what would be a good strategy.

Or any words of warning from someone here am i playing with fire? Propably will just try something paper trading .

I did buy a straddle last friday on RIMM knowing volatility would rise during the weekend and it did made some nice profits in 3 days holding.

ToniK

Hi Tonik I think a double diagonal will limit the loss yet still deliver some good gains. Here is latest from briefing-

RIMM Research In Motion: Expect strong Q1, with gross margin bounce and follow-on catalysts for Q2 outlook - Caris  (77.35 -2.94)

   Caris notes that RIMM reports Q1 results tomorrow and firm is comfortable with the aggressive ests they raised to back in early May, namely revs $3.50 bln and EPS $0.98 (consensus $3.43 bln/$0.94), driven by 8.2 mln handheld units vs. 7.5-8.0 mln guide, and 4.1 mln net sub adds vs. 3.7-3.9 mln guide, including particular strength at VZ. Looking into Q2, firm also remains above consensus, modeling revs $3.70bln/EPS $1.01 vs. cons $3.61bln/$0.95 on 8.7 mln units. Firm continues to get feedback from G.S.M. operators that RIMM keeps pushing more EDGE models at them, and while this could risk being too "evolutionary" vs. revolutionary, firm thinks it reflects a strategy to drive lower-ASP units but while also cost-optimizing using more established platforms, which firm sees helping support gross margins.

I expect them to beat both revenue as well as earning estimates and don't be surprised if they do raise the estimates. There are multiple strategies that one can use- The one I am thinking about-

1) A double diagonal - Jun/Jul 70/75 Put diagonal spread ($0.20 debit) and Jun/Jul 85/90 calls for $0.56. The overall cost will be $5.76. One needs to be quite careful while using this as there will be no time left for adjustments. This trade may make +20%..

[akivak]

RIMM is going to announce earnings thursday and friday is expiry day so Implied volatility is going to drop insanely from 300 to 0 on friday was thinking of trying a play here , by selling OTM puts or calls thursday before the earnings.

So as far as i see i can either buy a delta neutral position and hope that the price doesn't change much or try a straddle or strangle and hope it does change alot. Or any other ideas on what would be a good strategy.

Or any words of warning from someone here am i playing with fire? Propably will just try something paper trading .

I did buy a straddle last friday on RIMM knowing volatility would rise during the weekend and it did made some nice profits in 3 days holding.

ToniK

Hi Tonik I think a double diagonal will limit the loss yet still deliver some good gains. Here is latest from briefing-

RIMM Research In Motion: Expect strong Q1, with gross margin bounce and follow-on catalysts for Q2 outlook - Caris  (77.35 -2.94)

   Caris notes that RIMM reports Q1 results tomorrow and firm is comfortable with the aggressive ests they raised to back in early May, namely revs $3.50 bln and EPS $0.98 (consensus $3.43 bln/$0.94), driven by 8.2 mln handheld units vs. 7.5-8.0 mln guide, and 4.1 mln net sub adds vs. 3.7-3.9 mln guide, including particular strength at VZ. Looking into Q2, firm also remains above consensus, modeling revs $3.70bln/EPS $1.01 vs. cons $3.61bln/$0.95 on 8.7 mln units. Firm continues to get feedback from G.S.M. operators that RIMM keeps pushing more EDGE models at them, and while this could risk being too "evolutionary" vs. revolutionary, firm thinks it reflects a strategy to drive lower-ASP units but while also cost-optimizing using more established platforms, which firm sees helping support gross margins.

I expect them to beat both revenue as well as earning estimates and don't be surprised if they do raise the estimates. There are multiple strategies that one can use- The one I am thinking about-

1) A double diagonal - Jun/Jul 70/75 Put diagonal spread ($0.20 debit) and Jun/Jul 85/90 calls for $0.56. The overall cost will be $5.76. One needs to be quite careful while using this as there will be no time left for adjustments. This trade may make +20%..

Sorry, could you please clarify which strikes to buy and which to sell?
Thanks.

[optionpundit]

Sell Jun 75 PUT and 85 Call, Buy Jul 70 Put and 90 Call.

[optionpundit]

I have posted details here, pls use that comment thread for discussion on this thread.
http://www.optionpundit.net/optiontrading/rimm-a-speculative-play
Profitable trading, OP

[akivak]

Sell Jun 75 PUT and 85 Call, Buy Jul 70 Put and 90 Call.

Thanks!

According to my options simulator, this trade makes money between $69.2 and 93.9. Maximum profit is between 75 and 85 and is about 70-80%. You talked about 20%. is something wrong with my simulator?

[optionpundit]

Sell Jun 75 PUT and 85 Call, Buy Jul 70 Put and 90 Call.

Thanks!

According to my options simulator, this trade makes money between $69.2 and 93.9. Maximum profit is between 75 and 85 and is about 70-80%. You talked about 20%. is something wrong with my simulator?

My conservative estimates, expect the IV crush in Jul options as well, and depends on how far RIMM moves. (could I suggest to post comments on the main thread on the blog so other may benefit as well )

[telenetworx]

i haven't done this before.  is this a strangle?

[tonik]

Thanks OP , Im trying this got the DBLDiagonal for @.96. Wasnt sure if i should wait for the end of the day as volatility may rise all day? 

Most propably the news will have a positive effect on the price. Volatility will drop insanely 

[akivak]

Thanks OP , Im trying this got the DBLDiagonal for @.96. Wasnt sure if i should wait for the end of the day as volatility may rise all day? 

Most propably the news will have a positive effect on the price. Volatility will drop insanely 

I bought this diagonal yesterday for $1.02, now it's selling for $0.5. The volotility of the Jun calls/put was about 162 yesterday, it's more than 200 today! I guess it's doesn't matter too much as long as RIMM stays between 75 and 85 tomorrow, but I'm going to buy some more.

[TraderC]

This is good stuff, though we're skewed in a way that the downside surprise hurts our positions more.

I took a debit of .90, so it's good to see the position in the green at the moment.

So on a theoretical account of $10,000, how many diagonal positions would be logically sound for risk management?

[optionpundit]

I have posted details here, pls use that comment thread for discussion on this thread.
http://www.optionpundit.net/optiontrading/rimm-a-speculative-play
Profitable trading, OP

The trade must be making money, you should close it quickly and book your profits.

Profitable Trading, OP

[akivak]

I have posted details here, pls use that comment thread for discussion on this thread.
http://www.optionpundit.net/optiontrading/rimm-a-speculative-play
Profitable trading, OP

The trade must be making money, you should close it quickly and book your profits.

Profitable Trading, OP

OP,

First of all, thanks for the trade, it was brilliant. RIMM does not rise as you expected, it actually falls, but the trade is already making more than 20%! That's amazing!

The 75 puts still have a healthy time premium. In addition, the 75 puts have more than double open interest compared to 75 calls, so market makers are likely to be sure the puts expire worthless. Isn’t it worth to wait to the end of the day to squeeze some more profits or you think it’s not worth the risk?

[optionpundit]

I have posted details here, pls use that comment thread for discussion on this thread.
http://www.optionpundit.net/optiontrading/rimm-a-speculative-play
Profitable trading, OP

The trade must be making money, you should close it quickly and book your profits.

Profitable Trading, OP

OP,

First of all, thanks for the trade, it was brilliant. RIMM does not rise as you expected, it actually falls, but the trade is already making more than 20%! That's amazing!

The 75 puts still have a healthy time premium. In addition, the 75 puts have more than double open interest compared to 75 calls, so market makers are likely to be sure the puts expire worthless. Isn’t it worth to wait to the end of the day to squeeze some more profits or you think it’s not worth the risk?

20% gains for 1-2 day holdings are pretty good isn't it? why should give that back to markets? book it and enjoy the gains. Profit taking never hurts.