Research in Motion (RIMM) Bears Active as Stock Rallies

Research in Motion RIMM showed pronounced strength on Wednesday amid reports that the BlackBerry company's PlayBook tablet (designed to compete with the iPad) would be out early next year. What's more, its price point is rumored to be below $500, which potentially makes it more attractive than the Apple AAPL device.

The shares rallied more than 6% by yesterday's close and are up close to 20% during the past month. RIMM is on a run toward the 60 level, but it appears that some option traders seem to be expecting a relatively sharp pullback in the intermediate term.  These traders took advantage of Wednesday's pop higher to trade a risk reversal (also known as a synthetic short stock position).

Around 11:15 a.m. Eastern Time Wednesday, with RIMM shares trading for about $56.50, 4,500-contract blocks traded on the February 50 put and the February 65 call.  These blocks evidently traded simultaneously as a spread, where the puts were bought for $2.31 apiece and the calls were sold for $2.01 apiece. The net debit for the overall spread was 30 cents apiece. It appears as though these options traded to open given the limited open interest at both strikes before today's trading.

Out of the gate, the two-legged spread will behave similar to a short stock position, profitable should the stock fall and risk of loss to the upside in the share price. At expiration, as the profit/loss calculator illustrates below (part of my virtual stock trading account), losses are unlimited above the 65 strike. Potential gains are substantial (down to zero) south of the breakeven level of $49.70.

Between the 50 and 65 strikes, risk (at expiration) is limited to the 30-cent debit paid for the trade. The investor is willing to pay 30 cents (and potentially risk more) in the hopes that RIMM will fall below 50 before February options expiration in about 100 days. The company will have just one earnings release between now and then, on or around December 16.

Photo Credit: chang_sen

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