Of all the earnings plays our Options Mentoring Students like to get into, RIMM might be one of the most popular. It makes sense; the stock has high volatility, and for most of its existence has been relatively pricey. Yet, out of all the earnings plays I am not sure that one has cost my options mentoring students more than this little Canadian. The company has no pattern. The IV gets bid up and the earnings thud, the IV gets bid up and the company flies, the IV doesn't get bid up and the company flies, the IV gets....you option traders get the point. To further the evidence here is a look from LiveVolPro of the last 4 earnings cycles:
Some cycles were big movers other duds, I challenge any trader to find a pattern.
This cycle could be interesting, as we discussed today for tomorrow's Option Block Podcast, this company can really give us an insight into what is going on in the enterprise side of business:
No, not that one.
For what it’s worth, the world is not expecting very much to happen into earnings right now. With the stock trading near 61 dollars the front month straddle is super cheap at about under 4.50, less than 7.5%. A move the company has had on several occasions. The 60/62.5 strangle also seems dirt cheap at 3.30 and change. Since its last earnings, this company has been on a serious rally. In the mean time the implied volatility has been a bit choppy. The interesting thing to me is that right now it seems the IV is actually dropping ahead of earnings. With a company like RIMM's history, this is really strange:
Its also interesting is too compare what October from last cycle to January this cycle. The volatility difference is astounding at over 10 points difference in implied volatility.
Here is October:
Notice even the 60s, which are 15 points out of the money are trading at close to 55% IV. Now look at January:
Now the Jan is NOT the front month, that matters, but for the 60's which are now At-The Money to be trading more than 10 points lower than the last cycle means the market is expecting absolutely nothing, it could be because of the rally, and it could be the VIX itself. I personally am not buying it. I expect a couple of things
1. The IV is going to get bid up at some point. Making a 3.30 purchase of the 60/62.5 strangle a winner before earnings.
2. Sometime on the 15th, paper will start dictating the direction the stock is going to be heading. If I had to guess, they will be buying puts, but that is pure speculation, I need to follow the paper before I can get even a clue as to what direction RIMM is heading.
If I had a gun to my head I would think that the best purchase on the board ahead of earnings is the Jan 60 straddle, at under 7 dollars, this seems to be the cheapest purchase on the board. With the price December is trading at, I have no interest in calendars or diagonals on this stock. I will report back on this stock on Wednesday with some sort of plan of attack (or lack there off) in the form of another Video blog. My guess is I will end up owning either strangle, straddle, or and off center strangle.
Don't forget to register for tomorrow's webinar and for the love of all things good, start following us on twitter @optionpit
Graphs from livevol
