Sometimes They Don’t Work – Research in Motion Trade Recap

Wednesday night I put out what I thought was a great idea to sell strangles into the Research in Motion (ticker: $RIMM) earnings announcement Thursday afternoon. It was finding support, one day left on the options, protection against a 12% move by selling it for $1.00. The details are in the link below. Well unless you have been under a rock you know what was set up to be a bad report turned into a disaster. The stock gapped down to 32 and went immediately to 30 in the after hours market. All of a sudden the put side of my short strangles, protected to 31.5, were under water. So much for pocketing that premium. Now what? There is a lesson to be learned here.

Cut Your Losers – FAST

Below is the 5 minute chart for RIMM for the last 3 days. It opened with a big gap down Friday below 30. Many were calling for a bounce. After about 10 minutes it was clear that was not going to happen. I bought back the short puts for $3 creating a $2.00 loss. It hurt yes but as you can see it could have been much worse. I said the ‘F’ word loud enough for the neighbors to hear and then started to look for the next trade. This is how a trader has to think and react. The trade has moved against you. Shut it down and move on. Next. I am sure some of you are reading this thinking well it may still come back. It might. But if I had been indecisive early my $2 loss would have turned into a $3 loss in a bout 30 minutes and eventually a $4 dollar loss. This is how you go broke. Not rocket science. If you are losing get out.

Research in Motion Earnings Play

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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