Time to buy Research in Motion (NASDAQ: RIMM)?

Beth Gaston Moon noted some interesting, possibly moderate bullish trading activity yesterday in Research and Motion, Limited (RIMM).  She not only pointed out the trading action in the stock and options, which at first glance appears to be a buy-write, but also noted some technical points, one of them being RIMM’s cross above the 20-day simple moving average (SMA), above which it is having trouble holding today.

The 20-day SMA is currently at $66.45 while the 50-day, which currently sits at about $63.20, typically provides a bit more support when compared to the 20-day trendline.  Regardless, the trader yesterday probably got it right if he traded into a buy-write or covered call strategy.  I say that because with the broad market dropping and RIMM off about $0.75, those short calls may be providing some cushion; the trader can also buy back those calls if you feel the stock will rally back up.

Both the buy-write and the out-of-the-money short put, I feel, are appropriate strategies for a stock like RIMM, which I have made several bull cases for in the past.  I did, however take profits ahead of earnings, which is part of my strategy to mitigate risk exposure, as earnings can really be a wild card (take a look at Intel (NASDAQ: INTC) today) I did, however, re-iterate my bull case for RIMM going into the new year.

So what about RIMM now? Typically, I tend to buy on weakness and sell or protect that position if the underlying stock experiences an extended rally or abnormal move to the upside, especially if the broad market is shaky.  (RIMM tends to have a low correlation to the S&P).

Technically speaking, I feel RIMM has been in a downtrend since its last earnings report, but seems to have broken that with the move up on the 13th.  However, I do want to see RIMM close above its 20-day SMA and continue to move above it for a more confirmed uptrend.

Traders could begin to examine selling out-of-the-money put spreads in February with RIMM lower, using the 60 put (which is below the 50-day SMA) as the short strike and buying something below to minimize margin and risk.  This is more aggressive than waiting for the confirmation of the crossover over the 20 SMA, but the $6.00 plus of cushion that the put spread allows for in RIMM, gives the trade a much higher statistical probability.

Fundamentally, RIMM, in my opinion, is still attractive.  According to RIMM’s recent third-quarter report, Revenue was 3.92 billion, which was up 11% from the prior quarter and up 41% from the same quarter the year before.

RIMM added 4.4 BlackBerry subscriber accounts in that quarter, which brought its total subscriber base to 36 million.

Jim Balsillie, Co-CEO, noted that RIMM had exceeded its own expectations with record shipments of more than 10 million BlackBerry devices, as well as its revenue, earnings, and subscriber base for the third quarter.

RIMM also is pushing into China, which is a place where one of its competitors, Apple (NASDAQ: AAPL) has been struggling.

RIMM also released the Tour for Sprint and Verizon.  This is a speedy world phone that certainly is a big step up in features, power, and browsing from the Curve and Pearl, which were the only RIM phones available on Sprint prior to the Tour’s release.

Finaly, available in the U.S. and Canada is the Bold 9700, available through AT&T and T-Mobile and four different carriers in Canada.  The Storm2 9550, which is RIM’s premium touchscreen phone, is currently only offered on Verizon.

Hopefully with Google (NASDAQ: GOOG) setting a precedent with the Nexxus One, we will see a move towards having unlocked phones being offered by RIM and others that may cost a bit more upfront, but cheaper plans and no contracts from the service providers will help offset that cost and free us from those sometimes awful cell phone contracts, especially when one is stuck with a carrier they are not happy with.

I recently bought the Tour and love it, but I have to admit that I am a BlackBerry guy, and there will always be a place in the world for the iPhone.  I think that both can share the limelight together and offer unique products that cater to a diverse and often demanding consumer base.

Smartphones will become more of the norm and even though prices will most likely continue to decline,  affordability and the need to be “plugged in” at all times will drive demand and units sold.

The bigger story is the Smartphone universe as a whole, which is still majorly untapped.

Regardless of whether you agree with this thesis, approach any trade with a plan and preferably the odds on your side.

For more on RIMM:

Betting on a comeback in Research in Motion (NASDAQ: RIMM)?

RIMM, AAPL, and GOOG in the Smartphone universe