Friday, December 08, 2006

Deconstructing my RIMM puts option trade

At the request of CalTrader, I will post the results of my RIMM puts trade that I mentioned on Thursday. Too bad he didn't post his warning about the head fake today before my failed attempts to scalp RIMM in the afternoon. Anyways, here is how my RIMM puts trade turned out:

RIMM was smacked with a broker downgrade, plus the overall market was in a bearish mood on Thursday morning. Perfect recipe for buying puts. I watched RIMM perform an "inverse" breakout - it kept going down and down, and when it paused just after 10am EST, I saw the opportunity to take a shot at some puts. Entered the first position when the selloff resumed just after 1015am EST.

Why did I choose the Jan07 130 Puts? No particular reason, my gut feeling was that RIMM was within reach of the 130 strike price. As it turned out, the 20d ATR was $4, so my gut feel was correct.
Why did I decide to hold overnight? Because RIMM closed pretty much at its LoD on Thursday. Plus there was increased selling into the close.

Why did I sell where I did? Hmmm.... how should I answer this.... stock gaps down to open, bounces around, and is threatening to fill the gap. I don't know about you, but the Theta is ticking on my puts position, and I didn't want to stick around to find out whether the gap would fill or not. The LoD could just have easily occurred in the afternoon instead of in the morning.

Overall, I was happy with how I handled the trade.


Cal said...

nice trade, I'm thinking about buying more RIMM puts as per the video at
Tell-tale signs of Rimm's weakness, and clear indicators it could fall more, keep ya updated!

Phileo said...

Hi Cal,

Thanks for the link to Trade-Guild. I checked out his video, and it makes sense. I'll be sure to check out your blog to see how you did with RIMM. I also bought some RIMM Puts again today - will have a post on it later.