On Deck: Research In Motion

Research In Motion (RIMM, $45.62, up $2.51) finished Wednesday’s trading session slightly higher from Friday’s close and I mentioned a number of options and strategies that could be used based on your belief of where the stock may be headed after the company reports earnings today. I had favored the strangle trade and the April 50 calls (RFYDJ, $1.60, up $0.70) and the April 40 puts (RUPPH, $1.25, down $0.60) would have been the two options I was going to use to do this trade.

The stock was hit by a truck to start the week but is currently 60 cents higher than last Friday’s close. The two options above would have cost $3.20 ($320) to buy one call and one put option. Now it costs $2.85 ($285). So by waiting, we already got a 10% discount on the trade. The April 50 calls were going for a $1 shortly after the market opened yesterday and would have been a sweet entry point if you were bullish on RIMM through earnings.

The problem I still have with the straddle trade mentioned is that I don’t think we are going to get a 20% move in the stock. We know 10% is a given and maybe 15%, but 20% may be asking way too much. The other problem is that I don’t have a clue which way we go. My gut feeling is that the stock rallies again today and then sells-off after announcing earnings. I’m a little uncomfortable about their earnings forecast going forward and the smart-phone market seems to be getting more crowed everyday.

The April 60 calls (RFYDL, $0.22, up $0.10) should be active this morning. Futures are pointing towards a higher open as we await the opening bell.

Rick Rouse
Rick@OptionsMentoring.com

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