Big swings can often lead to strikeouts.
But it can also mean home runs, and that's exactly what "Options Action" contributor and Phoenix Partner's Chief Derivatives Strategist Dan Nathan hit last week by purchasing the RIMM December 60/65 strangle ahead of earnings.
Typically, such a strategy is a low probability bet as you are not only buying one, but two out-of-the-money options.
The goal: to profit from a massive move, either up or down.
But that's exactly what RIMM has done on previous earnings.
Over the past six quarters, RIMM stock has moved an average of 18% the day after earnings. That's the type of reaction one might expect from a penny stock, not a leading tech giant with a $40 billion market cap.
So how did the trade work out?
The stock jumped 12%, and had you bought the strangle on Monday for $3.40, you could sell it today for about $4.10. That's a return of 20%.
"Take the profit now," said Nathan.
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