I made a HUGE error recently. Decided to long a strangle on Alcoa using April contracts prior to their earnings release. I felt the market wanted a reason to rally so even if Alcoa came in slighly better than the worst estimates, I thought the stock would jump 4-5%. But to be on the 'safe' side, I decided to just make a volatility bet. Irrespective of direction, I thought the stock would move. Since I expected more movement/probability thereof on the upside, I chose a one-step farther out-of-the-money call than I did the put. The stock moved but not as much as I had hoped. Nonetheless I made a tiny profit of $60 on a $1100 position in a couple of hours. Thought I was in the green and placed a market order to close at night to be executed upon market-opening the next morning. I was aware of overnight price jumps but I thought volatility would decrease after the earnings report and didnt expect much price movement. I woke up to find my account with a $700 LOSS. The bet I had made was correct, but getting out of the position killed me.
 
I failed to account for 2 HUGE factors...the fact that theta-decay of option value in the front contract is huge. I essentially lost $75 simply in time decay...if not more. The 2nd factor was that once the earnings were released and given that there were only 18 days left to expiration, the volatility driving the options prices almost disappeared. There was nothing else in the news or market pipeline to create time value for the options. Went from a 5% profit to a 60% loss in the blink of an eye. So for the options experts out there - what could I have done differently? Should I have implemented this with a May or June contract? Should I have longed contracts in-the-money instead to dampen price decay? Should I have longed a straddle (same exercise price) instead of a strangle? Was it a big drop in liquidity/volume that dropped the price? Also traditionally the more liquid a stock/option, the tighter the bid-ask spread. But I see this violated often. Why? Advice/insight would be greatly appreciated. Academically Im quite versed in options theory and pricing but this is my first foray into trading my own real money and Im trying to put market behavior into my muscle memory fast!
 
Thanks in advance for your thoughts.

From what I've learned if you're in an out of the money call or put the market maker can deflate the value around the 14 day mark.  If you're in the money keep an eye on the option starting around the 14 day mark and be prepared to dump it.  It's safer to always stay in the money unless you know for sure the option is going into the money at some point.