RIMM Collar Trade for Upcoming 12-16-10 Earnings

RIMM Collar Trade for Upcoming 12-16-10 Earnings

I have picked up more shares over the last year of trading. Long puts and covered calls has produced profits to buy another 900 shares to lower my cost basis.  RIMM has it’s earnings on Dec 16th, 2010.  I MUST protect my stock from possible downward movement.  For 2 years, I feel RIMM basically has continued to head bearish.  On Monday December 13th to minimize time decay on the position, I will buy to open long puts – the right to sell my stock at a certain price for a certain period of time.  This will act as an insurance policy and I will describe my risk in the trade on Monday.  I also will use a pure option strategy with a high percentage to make some great money in the account.  Here is a snapshot of the current position on 12/10/10. 

Have you ever been completely sure that a stock was going to have a good earnings?  I thought RIMM would kill there earnings and go right to $100.  OF COURSE, that is not the case.  Thank goodness I am willing to cap some potential profit to lower if not eliminate my risk.  Let me show you a picture of the trade:

Now the key to this trade is what to do with it now that it hasn’t gone to $100.  I have a couple of different options available.
I can just lower my cost basis and hope it comes back.  or
Let’s manage this trade to profitability.  I will re-invest ALL of the short call credit ($1.83) and everything I paid for the Long Puts ($31,467) in new stock ownership as RIMM hits 65 or 60 as a level of support.  If you want to know why? Leave me a request to know why I am going to pick up more stock.

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163 Comments
  1. How do you get the whole credit on the short call without letting it expire? Won’t you have to pay something to close it if you don’t wait until November option expiration? And if you don’t wait doesn’t your put simply act the same a an additional investment into the stock not dissimilar to a traditional cost averaging strategy?

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  4. I think that RIMM also has a lot of potential going forward. Because the Blackberry is such a well structured and widely recognized brand, I think the company has a lot of viability. In that sense it is a good buy. As your picture illustrates, tech firms in general can be pretty volatile which is why it’s important to consider using caps when investing in them.

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