RIMM: Option-Trading Strategies in Research in Motion

Mad About Options takes a look at the stocks getting coverage from Jim Cramer, Fast Money casts and other heavy hitters in the financial press and reviews strategies option traders might have used if they agree or disagree with these assessments of the underlying stocks.

The Pick – Research in Motion Limited (RIMM):

In the November 2nd episode of Mad Money, Jim Cramer suggested being a buyer of RIMM down at its current levels.

Bullish Option Traders on RIMM: Bull Call Spread

Bullish investors who expect a rebound in RIMM could trade a long call spread. They could buy two January 30-strike calls for $26 each and sell two January 55 calls for $5.50 each, resulting in a net cost of $41 (or $20.5 per spread). The trade will be profitable if RIMM is trading above $50.50 at January expiration (the stock is currently at $55.74). Maximum profit for this strategy is $9 minus commissions; maximum loss is the premium paid ($41) plus commissions. For more options education on bull call spreads check out Options Physics.

Bearish Option Traders on RIMM: Bear Put Spread

Investors beared up on RIMM could buy a put spread by purchasing a December 76-strike put for $19.60 and selling the December 55 put for $4.20, for a net debit of $15.40. This trade will be profitable if RIMM shares are trading below $59.60 at December expiration. The maximum gain is $4.60 minus commissions; the maximum loss is the premium paid, or $15.40 plus commissions. Note: RIMM earnings will likely be released before December expiration.

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