Research In Motion Options (RIMM): Unusual Trading Activity

| July 2, 2012 | 0 Comments

Options in Research In Motion (RIMM) are trading large volume this morning.

With the broad market is in the red today, we’re surprised that our tracking system is showing unusual call spread buying in what has become a very unpopular name.

Europe is still dealing with their issues.  And domestic data this morning was mediocre at best.

It’s obvious that shares in Research in Motion are at eight year lows following last week’s disappointing earnings announcement.  But one trader is looking for a turnaround within the next several months.

In early trading, RIMM is up fractionally at $7.50 a share.  And the largest volume this morning is concentrated on two different call strikes.

The first is the RIMM March $9 strike call options.  In the first few minutes today, this strike traded over 3,000 contracts at an average price of $1.08.

The other RIMM option is the March $11 strike calls.  Right after the purchase of the March $9 calls, 3,000 contracts of the March $11 calls were sold for a price of $0.61 each.

Together, these two trades created a RIMM March $9 – $11 call spread for a price of $0.47.

So, if RIMM closes March expiration above $11 a share, this trader stands to make a whopping $459,000 on his $41,000 investment.

Not too shabby!

Don’t forget, a call spread is an option strategy where one call option is purchased and another is sold at a higher strike price.  This is done in order to reduce the option premium the trader has to pay, as well as to define his risk.

So, the question is, why so many call options on this troubled name?

As most of you know, Research In Motion designs and markets wireless handsets, software, and services.

RIMM’s primary revenue driver is the sale of handsets to carriers worldwide who promote the company’s BlackBerry line of devices.  In addition, the company generates access service fees from carriers for each BlackBerry subscriber.

Here’s the thing…

After getting beaten down heavily over its last earnings report, RIMM’s now putting in a short term bottom. And if we see any type of short covering rally over the next few months, RIMM will likely trade in lockstep with the overall market.

What’s more, the company plans to announce additional layoffs beginning as early as August 1st.

And when a company announces layoffs, the cost savings go directly to the bottom line.  As a result, this usually gives the stock a short-term bounce.

But most importantly, there are now rumors RIMM may be taken over by another mobile device operator.

And I think this is exactly what our call spread trader is betting on here.

If I’m right, this trader will be seeing a lot of vacation money coming his way.

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.