Research In Motion Earnings Trade with Options

• Posted by Greg Harmon
• on September 15th, 2011

This idea was released on the Premium Site yesterday just after 12 pm exactly as below. Earnings are released tonight after the close. Current price of trade is 22 cents. It got as low as free this morning. Read on. It still looks good.

Since it is not the weekend yet here is an earnings trade idea on Research in Motion, $RIMM, which reports after the bell on Thursday. As an exception I will be releasing this trade to the general blog on Thursday after 1:00 pm. Take a look at it now.

The Set Up

After the last earnings release $RIMM fell precipitously as shown in the gap in the daily chart below. After breaking into the gap it failed at 32.50and is now back under the important 30 level. The Relative Strength Index (RSI) is heading sharply lower and the Moving Average Convergence Divergence (MACD) is crossing negative. These both support more downside. It is set up negative going into earnings.

Additionally the weekly chart below is bearish showing topping tails on the last 3 candles and a very weak RSI. This not surprising when you look left to see the two year price channel from 2005-2007 that ran between 20 and 31.

This is an earnings trade though and it has had big moves, so we need to be a bit cautious. The At-the-money straddle (both the 29 and 30 strike straddles) imply a 12.5% move in the stock by Friday’s close. With the bearish bias the trade idea is a bearish risk reversal.

Sell September 34 Strike Call and Buy September 26 Strike Put for 21c debit.

This gives upside protection for a 16% move. It should also allow a profitable exit on the downside as long as the stock stays under 30, and much more if it falls the full 12.5% or more priced in options. If the stock gaps higher over 34 on earnings you should buy stock to hedge the short call until the morning. If it plays out as the charts suggest let the short call expire and sell the put on any stall that might happen at support at the 27.50 area.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.

If you like what you see sign up for more ideas and analysis using the Get Premium button above.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus