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With Research in Motion (NASDAQ: RIMM) shares slumping lower, put buyers pounce on February options
Related Symbols: RIMM
ONN’s Most-Active Options Update provides daily coverage of the “Lucky 13″ equities – stocks with the heaviest daily option volume (based on a 20-trading-day rolling average).
Slowly but surely, Research in Motion Limited (NASDAQ: RIMM) is filling the bull gap created after its December 17th earnings release. Since spiking more than 10% higher after surprising the Street to the upside, RIMM has retraced its gains by more than 6%. Earlier this week, shares of the BlackBerry parent dropped back below short-term support at its simple 20-day moving average.
Yesterday, RIMM shares moved modestly lower despite reports that Morgan Stanley initiated coverage on the stock with an “overweight” rating and a price target of $90. The brokerage noted that potential for unit volume growth across the globe will offset Stateside competition from the iPhone and the Droid.
With the technical trend pointed lower, and no earnings news on the horizon until April 1, put buyers descended upon the February 65 strike, trading nearly 10,500 of these near-the-money puts. Coming into yesterday’s session, open interest at this strike was just 4,893, indicating that the majority of this volume traded to open. In fact, open interest this morning reached more than 10,600, suggesting that the lion’s share of yesterday’s volume translated as new positions. The put option gained 15 cents on the day, a broader change than the 13-cent drop posted in the shares. It is therefore evident that these puts were being purchased, driving up their price on the day.
As demand for put protection increased on the day, so did implied volatility in RIMM. The February 65 straddle closed at $7.15, up from $7.05 at Monday’s close. The options market is now projecting an 11% move in the shares between now and February 19th, when these options expire.
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