Frenetic Options Activity Apparent as Shares of Research In Motion (RIMM) Tank

RIMM – Research In Motion Limited – The blackberry maker’s shares fell as much as 11.15% today, shattering its now defunct 52-week low of $54.30, to attain an intraday- and new 52-week low of $52.05. Blood-letting in RIMM shares accelerated today adding to dismal overall performance in the past several months. Shares of the underlying stock are down 31.5% since March 29 when the stock touched an intraday high of $76.78. RIMM’s shares took a severe beating today following the release of weaker-than-anticipated first-quarter sales on Thursday. Analysts expecting RIMM to report – on average – sales of $4.4 billion were dismayed to see first-quarter sales of $4.2 billion. Options traders stormed Research in Motion Ltd., exchanging more than 262,000 contracts on the stock by 3:50 pm (ET). One bearish investor expecting the price of the underlying stock to continue to decline ahead of August expiration purchased a debit put spread, buying approximately 5,000 now in-the-money puts at the August $52.5 strike at an average premium of $2.99 each, and selling the same number of puts at the lower August $42.5 strike for approximately $0.59 in premium apiece. The net cost of the pessimistic play amounts to $2.40 per contract and prepares the responsible party to profit if shares fall 3.75% from today’s low of $52.05 to breach the average breakeven point on the spread at $50.10 by expiration day. The put spreader stands ready to amass maximum potential profits of $7.60 per contract if Research in Motion’s shares drop another 18.35% to trade at or below $42.50 by August expiration. Options implied volatility on the Blackberry manufacturer collapsed following earnings and currently stands 26.4% lower at 40.62% as of 3:55 pm (ET).

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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