RIMM Bear-Butterfly Strategist Prepares for the Worst

RIMM – Research in Motion, Ltd. – Shares in BlackBerry maker, Research in Motion Ltd., took a severe beating today after a Sanford C. Bernstein Ltd. survey revealed more firms are choosing rival devices such as the iPhone, a sign the firm is relinquishing its share of the corporate market to its competitors. RIMM’s shares dropped 6.30% to an intraday- and new 52-week low of $42.72 in the final hour of trading. The price of the underlying stock, which reached a 13-month high of $88.08 on September 23, 2009, has since collapsed 51.5% lower to reach today’s value of $42.72. But, one options trader populating the longer-dated January 2011 contract today positioning for RIMM’s shares to nearly halve again by expiration. The investor initiated a bearish put butterfly spread, buying 1,100 puts at the January 2011 $27.5 strike for premium of $0.80 apiece, selling 2,200 puts at the January 2011 $22.5 strike for premium of $0.37 per contract, and buying 1,100 puts at the January 2011 $17.5 strike for premium of $0.18 each. The net cost of the spread amounts to $0.24 per contract. The investor stands prepared to accumulate profits if shares of the mobile device maker plummet 36.2% from the current price to breach the effective breakeven point at $27.26 by expiration day. Maximum potential profits of $4.76 per contract are safe inside the trader’s piggybank if the Canadian company’s shares collapse 47.3% lower to settle at $22.50 at expiration. The majority of options traders populated the near-term September contract where the September $40/$42.5/$45 strike puts were the most active.

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

2 Comments on RIMM Bear-Butterfly Strategist Prepares for the Worst

  1. We are witnessing the total collapse of the company known as RIM. The once darling of Wall Street is now carrying cholera and is to be avoided by investors at all costs. I suppose RIM shares will drop to about $25 before some company decides to purchase it. It’s really sad that a once strong company can be destroyed in a few quarters. In the mobile sector “there can be only one”. One company to reap all the profits and the rest reap nothing.

  2. I would tend to disagree with you Mr. iphonerulez. As your tag is indicative of a fanboi (or however you want to spell it – rulez – how cool) you comments use can be at least half dismissed as Appleganda. Check the financials and the picture isn’t all doom and gloom but look at the propaganda spewed everywhere by those who want to shake their iPhones and have it fart while finding the local Starbucks (multitasking at its finest) and you would think that Steve Jobs is the second coming. And as for your “there can only be one” comment – when that happens innovation and competition die (or your Utopia comes into existence where everyone and their baboon has an iPhone). Also, ever actually work in the mobile sector, or know anyone who worked in the mobile sector, or smell anyone in the mobile sector? Competition is key to a healty market/sector. OK, e-nuff already (cool, huh?).

Leave a Reply

Your email address will not be published.