Thursday, December 17, 2009

RIMM Call Spread

RIMM reports earnings after the close today and tomorrow is options expiration so that sets up a potentially explosive long gamma trade. Delta's of options will be either 1 or 0 at expy on friday's close and that means that stocks which have big moves this week can see the delta's of their options explode.

Usually I'm not a fan of buying spreads or options into earnings but for a gamble lottery ticket type of play with a great risk/reward this trade could pay off huge.

Buy the Dec 70/75 call spread for 50 cents.

By buying the 70 call and selling the 75 call you mitigate some of the risk of paying a premium into the number and you are only paying 10% of the potential $5 the spread can be worth on friday if RIMM goes to 75. That kind of move is entirely possible from a volatile stock like RIMM.

Of course if it does not clear about 70.50 then you lose money under that and you should be prepared to lose the entire 50 cents if RIMM does not get over that 70 mark tomorrow. But for the potential 10 bagger kind of trade I think this is worth taking with small size.

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