New Trade: RMBS Short FEB 19 Puts

On Tuesday 1/25/11 near the close of trading I sold short (10) FEB 19 Puts for .40. Cost average/risk is $18.60. That's over 2% return (.40/18.60) for less than a month, and I have 9% downside protection (1.86/20.46) to my break even point. Unfortunately this wasn't on my radar a few days ago. I could have entered at essentially the same spot near $20.46 but with 3 more days theta and a higher IV. I'm still comfortable with my entry point, but being around at the right time has advantages. This is a name I've played in the past and feel comfortably taking a long position should it be put to me at $19. Earnings are tomorrow after the bell so there is risk associated with that. However, IV is pretty high at the moment near 50. I don't care if earnings are terrible and the stock plunges as I'm willing to own. The worse case scenario is the stock does plunge, IV collapses, and there aren't any attractive covered call scenarios available for MAR expiration. That is the risk I'm accepting.

5-day chart showing entry point

1-year chart showing channel range, break even point, and possible support level near $17.50

IV at the higher end of the range for last six months