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RIMM Daily Chart – Long Straddle Example #1

Filed Under Trading Articles 

Source: Quote.com®

NOTES ON RESEARCH IN MOTION (RIMM)
Long Straddle

1. Since the beginning of 2005, RIMM has been trading in a volatile fashion, including an opening gap down day of around 10%.

2. Besides the up and down monthly ranges, the stock has many long candles, indicating large intra-day movements. There are as many large downside days as upside days, and even though the stock has an incredible range, it is actually in a sideways trading pattern.

3. In this case, a long straddle is usable to acquire a long gamma position. The long gamma position can be traded effectively on a daily basis to offset the decay of the position. Further, the long gamma position will benefit from gap openings and the large intraday moves.

4. The long gamma position benefits from movement whether intraday, or weekly, back and forth or in a single direction. However, like all strategies, there is a downside. The downside is decay. You must offset the decay of the position by trading the stock back and forth hoping for some large intraday ranges and a few gap openings like RIMM demonstrates here.

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