RIMM- A Speculative Play

Published on June 17, 2009

RIMM- A Speculative Play

June 17, 2009

RIMM is going to announce earnings Thursday after market close. It will be followed by Options Expiration on Friday. The IVs will drop significantly post earning announcements.

What to expect from earnings; Here is from briefing.com-

RIMM Research In Motion: Expect strong Q1, with gross margin bounce and follow-on catalysts for Q2 outlook – Caris (77.35 -2.94)

Caris notes that RIMM reports Q1 results tomorrow and firm is comfortable with the aggressive ests they raised to back in early May, namely revs $3.50 bln and EPS $0.98 (consensus $3.43 bln/$0.94), driven by 8.2 mln handheld units vs. 7.5-8.0 mln guide, and 4.1 mln net sub adds vs. 3.7-3.9 mln guide, including particular strength at VZ. Looking into Q2, firm also remains above consensus, modeling revs $3.70bln/EPS $1.01 vs. cons $3.61bln/$0.95 on 8.7 mln units. Firm continues to get feedback from G.S.M. operators that RIMM keeps pushing more EDGE models at them, and while this could risk being too “evolutionary” vs. revolutionary, firm thinks it reflects a strategy to drive lower-ASP units but while also cost-optimizing using more established platforms, which firm sees helping support gross margins.

I expect RIMM to beat both revenue as well as earning estimates and don’t be surprised if they do raise the estimates. There are multiple strategies that one can use to play this. I am particulary looking for a RIMM Double Diagonal to play this event.

rimm-dd-speculative-trade-june-09Trade specifics – Buying to open Jun/Jul 70/75 Put diagonal spread ($0.20 debit) and Jun/Jul 85/90 calls for $0.56 i.e. Sell Jun 75 PUT and 85 Call, Buy Jul 70 Put and 90 Call.

The overall cost will be $5.76. One needs to be quite careful while using this as there will be no time left for adjustments.

Pls invest only the amount that you can afford to lose 100%.

Disclaimer- I don’t have this trade opened yet. I may or may not open, and even if I open, I may close any time. Pls ensure that you have risk management plan in place should it go against above trading plan.

Profitable Trading, OP

5 Comments

  • Avatar Steve Place says:

    Seems to be the popular trade. I did something similar except with a dbl calendar: 80 calls and 75 puts. Can see vid here: http://tipd.com/Stocks/an-indepth-video-on-how-i-played-rimm-earnings/

    Good luck!

  • Avatar OptionPundit says:

    The trade is already making a good sum, if you were following it then close it and book profits.

    Profitable trading, OP

  • Avatar Kim Klaiman says:

    OP,

    First of all, thanks for the trade, it was brilliant. RIMM does not rise as you expected, it actually falls, but the trade is already making more than 20%! That’s amazing!

    The 75 puts still have a healthy time premium. In addition, the 75 puts have more than double open interest compared to 75 calls, so market makers are likely to be sure the puts expire worthless. Isn’t it worth to wait to the end of the day to squeeze some more profits or you think it’s not worth the risk?

  • Avatar OptionPundit says:

    20% gains for 1-2 day holdings are pretty good isn’t it? why should give that back to markets? book it and enjoy the gains. Profit taking never hurts.

  • […] free trade that was shared here delivered a +19%, an excellent trade for two days holding period. Hope you have been in touch with the blog posts […]

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