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Research in Motion Traders Pick Up Eleventh-Hour Bets

RIMM call buying has accelerated in step with short selling

by 1/10/2013 11:12 AM
Stocks quoted in this article:

It looks like options traders are gambling on more short-term upside for Research In Motion Limited (USA) (NASDAQ:RIMM - 11.76), which has added more than 2% in early action. Most notably, the stock's weekly 1/11 12-strike call has seen more than 6,100 contracts change hands -- a healthy portion at the ask price, suggesting they were bought. Plus, implied volatility on the soon-to-expire option was last seen more than 28 percentage points higher, hinting at fresh eleventh-hour bets.

By purchasing the calls to open, the buyers are expecting RIMM to topple the $12 level by the closing bell tomorrow, when the options expire. More specifically, the calls crossed at a volume-weighted average price (VWAP) of $0.14, indicating a breakeven level of $12.14 (strike plus VWAP) for the buyers. However, the most the speculators can lose is limited to the initial premium paid for the calls.

Taking a look at the recent trends on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), we find that options players have been picking up RIMM calls at an accelerated clip. The security's 10-day call/put volume ratio of 1.89 indicates that traders have bought to open almost two calls for every put during the past two weeks. Plus, this ratio ranks in the 64th percentile of its annual range, implying that option buyers are scooping up calls over puts at a faster-than-usual pace.

However, it's worth noting that short interest on the equity spiked 14.8% during the most recent reporting period, and now accounts for nearly one-quarter of RIMM's total available float. Against this backdrop, it's possible that RIMM shorts are picking up long calls to hedge their bearish bets -- especially in light of the stock's upward momentum of late.

On the charts, RIMM has nearly doubled since touching a multi-year low of $6.22 in September, led into the black atop its 10-week moving average. In today's session, the shares were last seen 2.4% higher to wink at the $11.76 level, thanks to news that T-Mobile USA, Verizon Communications (NYSE:VZ), and AT&T (NYSE:T) will support RIMM's BlackBerry 10, which is slated for debut on Jan. 30.


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