On Friday, I put on a call spread on $YELP, sold the 36.50 and bought the 38.50 for a credit of 45 cents, expiring next Friday. Yelp reported that morning and dropped 5 bucks, I put this trade on when the stock price was $36. It closed at $35.84.
I mentioned this to Sean McLaughlin, host of the Gimme Some Options podcast, who called a one week play "bold." That gave me something to think about.
Many of this trades, and some of mine, are for longer duration, where the goal is to pick up premium as the the implied volatility peters out over the life of the option. I have no problems with this, it's a solid strategy.
Making a trade on a short dated option is different. The plan on my Yelp trade is mostly directional. I think Yelp is going to sit here or continue to slide over the next week. If so, I get the whole premium. I gave myself a little cushion by going with the $36.50, and probably cost myself a dime or two. If I'm wrong, it could ugly, but will be over fast.
We will see how it works out.