RIMM – Research in Motion Limited – One options trader purchased a debit put spread in the August contract today perhaps because he is not convinced the Blackberry maker’s shares have yet reached a bottom. RIMM’s shares are currently up 0.40% to $52.44, recovering slightly after last week’s horrendous performance, and bouncing up off an intraday- and new 52-week low of $51.96 this morning. The RIMM-bear is preparing for shares of the underlying stock to suffer further declines ahead of August expiration by purchasing roughly 6,000 in-the-money puts at the August $52.5 strike for an average premium of $3.49 each, and by selling about the same number of puts at the lower August $42.5 strike for an average premium of $0.63 apiece. Net premium paid to establish the pessimistic play amounts to $2.86 per contract. The put spreader makes money if, by expiration, RIMM’s shares fall another 5.33% to reach new lows and breach the average breakeven point to the downside at $49.64. Maximum available profits of $7.14 per contract pad the investor’s wallet if Research in Motion’s shares plunge 18.95% from the current price of $52.44 to trade at or below $42.50 by August expiration.
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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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