Research In Motion Limited (NASDAQ: RIMM) may be oversold from a longer-term perspective, but if your looking for an options trade, the trend is your friend, and the current trend is down.
RIMM’s newest smartphone, the BlackBerry Torch, has already seen its price cut in half to $99.99 by Amazon.com Inc. (NASDAQ: AMZN) and some other online shopping sites. This is a pretty bad sign considering that the phone just launched Thursday at $199.99.
Early reports have suggested that Torch sales have been soft. Not good for RIMM. Imagine what would happen if Apple Inc. (NASDAQ: AAPL) had to rely on older iPhones for its growth rather than newer models. Analysts would say that the company had lost its creative edge. That is what appears to have happened with RIMM.
The stock just broke under $50. If Torch sales continue to be as bad as a 50% price cut would suggest, then the company will be forced to lower its sell-through and shipment guidance. If guidance looks gruesome, RIMM could drop to $40.
For option traders, there is no reason to pay a lot for time value, but with August options expiring Friday, you will need to go out to September for a trade.
The RIMM Sept 45 Puts can be bought for $1.35. The $45 put is actually the least active of the puts among the $50, $47.50 and $42.50 strike prices. After crunching the numbers, this $45 strike offers the biggest bang for the buck if RIMM continues its slide, and will result in big gains even if the $40 downside target is not hit.
RIMM’s 52-week trading range is $47.42 to $88.08. The stock has already been through the ringer, and the overhang from the Indian, Saudi and other government threats to make it open the systems up look to be resolved for the most part. But if RIMM continues to find weak reception for its latest smartphone, you will be happy to be positioned on the downside.
Follow Jon Ogg on Twitter @jonogg.
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