Options Traders Tackle RIMM

RIMM – Research in Motion, Ltd. – Bruised, battered and beaten-down does not adequately describe how shares in RIMM look these days, particularly today after the company revealed fourth-quarter sales and earnings guidance that missed expectations, and said the new generation of Blackberrys will launch later than it had anticipated. Shares in the Research in Motion opened the session down 13.3% at an eight-year low of $13.12. The stock this year has lost more than 80.0% of its value this year, having come down from a February 18, 2011, 52-week high of $70.54. Options volume on the stock is just about to top 400,000 contracts as of 1:00 PM in New York, making it the most actively traded single-stock name by options volume today. Puts on the Blackberry maker are changing hands roughly 1.8 times for each single call option in action today. Trading in weekly options set to expire next Friday suggest some traders expect the price of the underlying to slump to fresh lows during the next five trading sessions. Bearish positions accumulated at the Dec. ’23 $14 strike, where more than 4,500 in-the-money puts changed hands against 1,082 open positions. It looks like most of the puts were purchased for an average premium of $0.83 each. Traders eyeing continued near-term weakness snapped up around 2,000 puts at the lower Dec. ’23 $13 strike at an average premium of $0.35 a-pop. Investors long the $13 strike puts may profit at expiration in the event that RIMM’s shares slip beneath the average breakeven point at $12.65. Call sellers also made an appearance in the weekly options, selling roughly 2,000 contracts at the Dec. ’23 $13 strike to pocket an average premium of $0.84 apiece. Investors selling the call options may walk away with the full amount of premium in hand as long as shares settle below $13.00 at expiration.

RRR – RSC Holdings Inc. – Out-of-the-money call options purchased on RSC Holdings, Inc. back in October when shares were hovering around $8.40 have sky-rocketed in value today after United Rentals Inc. agreed to buy the rival equipment rental company for $1.9 billion in cash and stock. Shares in RSC Holdings are up more than 55.0% today to stand at $17.67 as of 1:45 PM ET. We noted unusually high call activity on RSC Holdings in our report dated October 7, stating that it appeared some 2,900 calls were purchased at the Dec. $10 strike for an average premium of $0.72 per contract. The current open interest level in the Dec. $10 strike call reads 2,760, and little to no change in this metric since it spiked back on October 7 suggests the trader held the position through the announcement by United Rentals. Today marks the final day of trading for the December expiry options and it looks like the big move in RSC Holdings Inc.’s shares the call buyer had been hoping for came just in time. The now deep in-the-money contracts are today the most actively traded on RRR, with roughly 1,000 having been sold at the Dec. $10 strike for an average premium of $7.61 each. There’s no way for us to tell whether the buyer of the calls on October 7 is responsible for selling activity today. The value of the calls in the two months elapsed since the date of purchase jumped roughly 1,000.0% to $7.60 from $0.72. Finally, call buyers at the $12.5 strikes in the December and January 2012 expiries saw the value of their positions spike, as well. It looks like the buyer of 250 calls at the Dec. $12.5 strike for a premium of $0.18 each back on November 23 could turn around and sell those contracts for $5.10 apiece today, while the buyer of 330 calls at the Jan. 2012 $12.5 strike at $0.75 each back on December 7 could sell the contracts for $5.00 at present.

HNR – Harvest Natural Resources, Inc. – The energy company made an appearance on our ‘hot by options volume’ market scanner today after a number of call options changed hands in the January 2012 contract. Shares in Harvest Natural Resources, which fell earlier in the week along with the energy sector, rebounded on Friday, gaining 3.05% to trade at $7.05 this afternoon. Options activity on HNR is mainly confined to the Jan. 2012 $7.5 strike call, where 2,520 traded against open interest of just 41 positions. It looks like roughly 820 of the calls were purchased, while around 1,580 contracts traded to the middle of the market. If the strategist indeed purchased the calls, he may start to profit on the position if shares in Harvest Natural Resources surge 14.2% to surpass the effective breakeven price of $8.05 by expiration day next year.

DAL – Delta Air Lines, Inc. – Shares in Delta Air Lines added to Thursday’s gains during the final trading session of the week to stand 5.1% higher on the day at $9.03 as of 12:25 PM in New York. Options activity on the stock this morning suggests one strategist is prepared to profit in the event that Delta’s shares continue to climb in the first few months of the New Year. One trader offset the cost of taking a bullish stance on the air carrier by selling 5,000 puts at the Mar. 2012 $7.0 strike for a premium of $0.26 each and buying the same number of calls up at the Mar. 2012 $11 strike at a premium of $0.25 apiece. The risk-reversal trade results in a net credit of $0.01 per contract to the investor, which he or she keeps as long as shares in Delta exceed $7.00 at expiration. Additional profits are available on the position in the event that DAL’s shares surge 21.8% to exceed the breakeven price of $11.00 by expiration in March.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

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.

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