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RIMM has fore sure been an under performer as of late. But implied volatility is currently trading at a discount to historical volatility which may be indicating that Vol is a buy here. Take a look at the chart below.
I'm guessing the the reason IV is currently low is because their next earnings isn't schedule until April 1. So let's see if we can do some modeling here. Suppose you think IV is a buy so you want to buy the ATM straddle. If you are right and IV eventually moves, as long as it's at somewhat of a floor price,then your only risk of being long the straddle is theta decay.
And since earnings is a little more than 9 weeks away, let's play the the simulator and see what kind of $ movement you need in the underlying(in either direction since you are long the call and put) that has to occur to make up for theta decay. Example: If IV doesn't increase for the next 2,3,4,5 weeks, what kind of dollar movement do I eventually need to see over those time periods in order for delta to even out that theta decay.
If that dollar movement is in the historical range that you think is feasible, then this is an IV buy. If you are wrong, IV can't go to 0. I think your risk/reward here probably makes sense, wold like to see the scenario analysis first though.
I'm guessing the the reason IV is currently low is because their next earnings isn't schedule until April 1. So let's see if we can do some modeling here. Suppose you think IV is a buy so you want to buy the ATM straddle. If you are right and IV eventually moves, as long as it's at somewhat of a floor price,then your only risk of being long the straddle is theta decay.
ReplyDeleteAnd since earnings is a little more than 9 weeks away, let's play the the simulator and see what kind of $ movement you need in the underlying(in either direction since you are long the call and put) that has to occur to make up for theta decay. Example: If IV doesn't increase for the next 2,3,4,5 weeks, what kind of dollar movement do I eventually need to see over those time periods in order for delta to even out that theta decay.
If that dollar movement is in the historical range that you think is feasible, then this is an IV buy. If you are wrong, IV can't go to 0. I think your risk/reward here probably makes sense, wold like to see the scenario analysis first though.
I will run the analysis and get back to you.
ReplyDelete