We spent the day thrashing around in expiring Research In Motion puts and calls, which turned lethal after the close. The stock had climbed steadily throughout the session, settling at 108 with a quite respectable gain of $6 on the day, But that was before news came out immediately after the bell that RIMM had beaten by three cents a supposedly over-the-top street estimate of 62 cents per share. Within minutes, a short-squeeze panic developed that pushed the stock $11 higher to a peak at 119.45 that may have been surpassed by the time you read this.

(Click on chart to enlarge)

Seldom have we been so tempted to short expiring options willy-nilly, since implied volatilities were as high as we have seen them in more than 30 years of trading. In fact, December option volatilities were around 240 – about four times what we might expect for a “typical” $100 stock that is traded mostly by nut-jobs.  But with December expiration just hours away, who could resist the temptation to sell, say, December 115 calls for $175 apiece that were seven dollars out-of-the-money!?  Well, anyone who took this sucker’s bet would be in pain right now, since the stock at its evening-session high would have made each and every Dec 115 call shorted for $175 of "free money" a $200 loser.

Greed Is Good -- Up to a Point

We had begun the day ourselves short some December 100 straddles for 10.20 ($1020), but we were protected above 110 by some December 110 calls we’d acquired as an afterthought for 2.00 ($200).  This meant the worst we could have done per combo was to lose $180, versus a maximum possible gain of $820. Not content with such fat odds, we greedily shorted some December 90 puts for good measure, offsetting any possible loss with the stock north of $90. The short sale of way-out-of-the-money puts seemed like a capital idea until “Snurf Ninja” mentioned in the Rick’s Picks chat room that RIMM’s earnings were due out after the close.  Ahhh! So that’s why “those idiots” were paying as much a 1.00 for two-day puts that were twelve dollars out-of-the-money!

RIMM shares were frolicking above $100 at the time, but as we well know, if earnings were about to come in three cents below expectations rather than three cents above them, RIMM could easily be trading $20 lower in the blink of an eye. So we covered the December 90 puts, paying even more for them than some of “the idiots” who’d been buying them earlier in the day.

For RIMM traders, the dust won’t settle until put and call action resumes on Friday morning and catches up with the stock. Our loss with the stock above $110 will be minimal in any case, but it took an eight-side option position to fight the demons to a draw.

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Aloha Rick.  I just want to thank you personally for all of your posts in Comex Gold and Silver.  I have traded gold/silver futures for a decade and there is NO ONE who has identified prices as accurately as you do. FACT:  Your New Year's Eve call of a high at 643.10 call was dead-on (even if floor traders ran it up a few days later to flush the momentum traders.) But your subsequent forecast of a pullback low at 603.00 was mind boggling! I Sold my longs at 643.10 and covered my shorts at  603.00 -- the exact bottom.

   -- Mark Johnson, Hawaiian subscriber

***

Want to learn exactly how I do it? Then click here for details concerning next month’s online Hidden Pivot Seminar on January 5-6 (Saturday/Sunday morning). Sign up now while there are still some seats left. The goal of this course is nothing less than to teach traders and investors of all levels of experience how to forecast stocks and commodities at least as accurately and confidently as those who do it successfully for a living.

With just a cursory understanding of the material taught in the course and a little bit of follow-up, you will never again have to ask an “expert” what he thinks about a particular stock or “the market.” That’s because you will be better equipped yourself to answer the question simply by looking at a few charts.

The course is not about technical analysis in the conventional sense, with its tired and overly scrutinized trendlines, its familiar oscillators, channels, volume indicators, and all the rest, Rather, it is a way of looking at charts with a fresh eye – to see charts as “art,” with emphasis on visual elements of harmony, symmetry, and, indeed, beauty. My annotated charts do not look even remotely like those of other technicians, and that is why the “buy” and “sell” signals that come from them rarely coincide with those favored and used by the herd.

Never Again Rely on ‘Experts’

The online class will be a particularly good opportunity for those who were unable to attend my classes last year in New York, Sydney, Vancouver, San Francisco and Denver. If you’ve visited the Rick’s Picks chat room and marveled at the forecasting skill of seminar grads, this course is designed to quickly bring you up to their level. While I cannot guarantee that the course will turn you into a fabulously rich trader,  I can promise, as stated above, that with a little diligence and practice, your ability to precisely predict price reversals in stocks, indexes, options and commodities will be at least as good as anyone whose forecasts you have ever paid for.

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