Trading Research in Motion (RIMM) in “light” of the BlackBerry Torch

Research In Motion Limited RIMM shares were “in motion” on Tuesday after the company announced the release of its latest smartphone, the BlackBerry Torch 9800. It will be the first device to run on the BlackBerry 6 operating system. It’s a touch screen phone (with a slide-out keyboard) that is expected to be a worthy rival to the iPhone and other smartphones. The device, which will cost $199 with a two-year contract, is exclusively offered by AT&T T. In fact, T’s President and CEO of Mobility and Consumer Markets calls the Torch “The best BlackBerry device ever.”

Always one of the final big names to report during earnings season, RIMM is expected in the earnings confessional on or around September 23. Analysts are currently expecting per-share earnings of $1.36. This compares to year-ago results of $1.03 for the same reporting period.

Will the Torch spell good news for RIMM, or will it be a case of “buy the rumor, sell the news?” Additionally, how might RIMM fare when it reports earnings next month? For those interested in playing a bullish or bearish thesis in RIMM using options, we’ve outlined two strategies below.

Note that these are not buy/sell/hold recommendations, merely examples of various strategies for educational purposes. The prices are taken as of Tuesday’s close, when RIMM shares were trading at $55.53, down $1.45 on the day.

Bullish Option Strategy: Bull Call Spread

Investors who have a moderately bullish thesis on RIMM for the short term could consider buying a bull call spread. The September 45/57.50 call spread could be purchased for a net debit of $9 (buying the 45-strike call and selling the 57.50 call). If RIMM is trading below the $45 level when the options expire on September 17, the investor can’t lose any more than this premium paid.

The maximum gain, if RIMM is trading above $57.50, is $3.50, or the difference between strike prices less the premium paid. Breakeven for this strategy is $54, or the long call strike plus the net debit.

For more information on bull call spreads in general, check out our free webinar on the topic on August 10, when this strategy is dissected in the “Two Traders, One Strategy” series. And you can access past strategy webinars from our events page.

Research in Motion (RIMM) bull call spread

Bearish Option Strategy: Put Butterfly

RIMM skeptics could look into buying a put butterfly spread. The December 47.50/55/75 put butterfly could be purchased for an overall net debit of $11.70 by:

Buying one December 47.50 put
Selling two December 55 puts
Buying one December 75 put

If RIMM is trading right at 55 when December options expire, the investor collects the maximum potential profit of $8.30 (the widest span between put strikes minus the debit paid). The maximum loss, meanwhile, is 100% of the debit paid ($11.70) and occurs if RIMM is trading at 75 or above at expiration.

Because this butterfly spread is of the “broken-wing” variety (the distance between the strikes is not the same on either end of the short put), there is only one breakeven price, which is $63.30. If RIMM is trading anywhere below this level when the options expire, the trade will be profitable. Below 47.50, gains are limited to $0.80 (the maximum profit minus the difference between the 55 and 47.50 strikes).

Research in Motion (RIMM) put butterfly