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GMCR dropped over 8% today after the announcement of their new KOLD machine did not exactly impress anyone. So, I wanted to construct a short term trade to benefit from some more downside over the next few weeks. Because a big drop is possible IMO I wanted a trade that will not lose if the drop is bigger than I expect (so I ruled out flies and calendars) and one that I can easily adjust if I'm wrong and GMCR starts to rise. I decided on using a diagonal trade where with GMCR around 94.50 this afternoon I bought the May29 94 put and sold the May22 93 put for a debit of 0.92. Best case is if GMCR drifts down a few more dollars over the next week, and then I'll close the trade as it stands late next week. Could be around a 100% profit if its near 93 at the end of next week. If the bottom falls out and GMCR drops a lot, then my diagonal will likely be worth a few cents over 1.00 - and since I paid 0.92 for it, then I'll still make a modest profit. If I'm wrong and GMCR starts to rise then I'll roll my short 93 put to the 94 put turning the trade into a 94 call calendar. We'll see how it plays out. I think the only way I'll lose big is if GMCR stock price spike up significantly.
Kim posted a topic in General BoardIn one of my previous articles I described a study done by tastytrade, claiming that buying premium before earnings does not work. The title of the study was "We Put The Nail In The Coffin On "Buying Premium Prior To Earnings". I demonstrated that their study was highly flawed, for several reasons (strikes selection, stocks selection, timing etc.) It seems that they did now another study, claiming to get similar results. Click here to view the article