|
Research In Motion (RIMM) is testing major resistance near the 71 area that goes back to September. If it closes above about 71.54 it can move fast as there is a big gap above that level. However I do not think we see that in the short term, especially if this market continues to make lower highs. Eventually it will break away into that gap and you will want to own some calls but for now I think fading the recent up move from 65 is a higher probability trade.
RIMM has great support underneath it in the mid 60s so while I see a pullback I doubt its a big one. Earnings are not until late March so option prices are decently priced but because of the uncertainty I have in the price range I think you can expect it to stay mostly rangebound or within a few bucks of that 70 level that is so important.
For that reason I would buy a Feb 65/70/75 put butterfly for roughly 2.60.
This trade makes money by next Friday as long as RIMM is between about 67.60-72.40. As you can see in the risk graph the trade profits most if the stock ends next week at 70 (the strike that you sold short twice as many times as you bought the outer strikes in this spread.) You can just as easily do this with calls and pay the same price but I just chose puts this time since puts are usually priced (in IV terms) a bit higher than calls and this is a positive theta play.
As for risk, you can only lose what you paid so use small size and if RIMM is outisde of the stated range by mid next week then simply take the loss and move on.
 |
