RIMM option observation

Rimm dropped from Fridays close of $102.65 to end today at $100.01. I have been observing some options. In my last RIMM post, I spoke of a strangle play being to expensive. This is a one day observation with a drop of $2.45. This was a almost a perfectly balanced 100 strike put and 105 call. This took the put to at the money which should have made this play profitable. The play in fact was not profitable. The put gained value as the stock dropped, but the call lost more than the put gained.

This is where the intricacies of option playing gets confusing. One would have expected the put to gain value faster than the call lost value. What happened?

Both contracts lost implied volatility. Now, one might wonder how we figure what the implied volatility is before we play. There are calculators as well as areas like 888options.com where you can see what the implied volatility may be. So what will the implied volatility tell a person?

The implied volatility won't tell the person much if they do not understand the movement of the option contracts. Implied volatility (IV) is a relative measure. Some stocks exhibit higher IV than others. IV is also a reflection of the expectation of the buyer. This is why we are observing the RIMM options. I will have a full posting at the end of the week as we watch the options move with RIMM. This will include Delta, Theta, Gamma, and Vega. By the end of the week we will have a little understanding about RIMM option contracts that we never had before.

For clarification following is a breakdown of premiums from Friday to today on all the options that we observed. Just to make it interesting, I will post these into strangle pairs.

Friday: Oct 100 put=$2.30 Oct. 105 call=$2.75 combination=$5.05
Monday: Oct 100 put=$3.15 Oct 105 call= $1.50 Combination=$4.65

Friday: Oct. 95 put=$.95 Oct.110 call=$1.20 Combination= $2.15
Monday: Oct. 95 put=$1.35 Oct.110 call=$.55 Combination=$1.90

Friday: Oct. 90 put=$.35 Oct.115 call=$.50 Combination=$.85
Monday: Oct. 90 put=$.55 Oct. 115 call=$.20 Combination=$.75

Friday: Nov. 100 put=$3.95 Nov. 105 call=$4.60 Combination=$8.55
Monday: Nov. 100 put=$4.95 Nov.105 call=$3.35 Combination=$8.30

Friday: Nov. 95 put=$2.20 Nov.110 call=$2.75 Combination=$4.95
Monday: Nov. 95 put=$2.85 Nov.110 call=$1.90 Combination=$4.75

Friday: Nov. 90 put=$1.20 Nov. 115 call= $1.60 Combination= $2.80
Monday: Nov. 90 put=$1.55 Nov. 115 call=$1.00 Combination= $2.55

As we observe options, I want you to take a look at what happens as the stock moves. We will see some increase in IV. We will observe about five stocks with the corresponding option contracts going into earning. This observation will be 2 weeks prior to the earnings announcement. If you want to study these posts, you will become a very knowledgeable person in options.

Good luck investors