Recommendation: Short RIMM stock following the release of BB10 on Jan. 30

Option Alternative: Buy the March at the money puts following the BB10 release as a way to profit from the decline or protection against long term bullish positions.

The stock of Research in Motion (NASDAQ:RIMM) has been on quite a tear, with a share price that has almost tripled since September in the run-up to BlackBerry 10. Both Scotia Group and Jeffries Capital upgraded the stock after RIMM CEO Thorsten Heins announced that licensing its products and software was still on the table…but until that becomes a reality, RIMM is still not worth a long-term investment.

Loss of Core Users

To its credit, RIMM boasts a loyal following. RIMM’s corporate clients are part of that base, and the company has maintained a rapport with them because of its highly respected security safeguards. Also, it boasts 100 million users of its unique instant messaging system.

RIMM suffered a blow last fall when it lost its exclusive status as the Pentagon’s smartphone provider. However, security strides Apple and Google made to their software and devices made them just as attractive. In October, the Pentagon opened up the bidding process for mobile phone vendors, a move prompted by requests from members of the military who wanted devices with larger screens, which are strong features of Samsung, Nokia (NYSE:NOK), HTC, LG and Apple (NASDAQ:AAPL) devices.

Can’t Dismiss RIMM’s Poor Fundamentals

The company’s very disturbing fundamentals continue to gnaw at us. For example, RIMM’s earnings per share have been in a free fall from $3.27 to negative $1.15 over the last five quarters. It will take some tremendous BB10 sales and several quarters of earnings growth from those sales to correct this downward spiral.

RIMM’s third quarter revenue was $2.7 billion. That was a 5% decline from the $2.9 billion reported in the previous quarter. And that was a 47% decline from the $5.2 billion reported in the same quarter of fiscal 2012.

Then there is its stock performance. Back in mid-2008, RIMM was trading as high as $145. Clearly its deterioration in price was caused more by the recession than Apple’s iPhone release. Between 2009 and 2011, the stock consistently traded between $83 and $70. However, it fell sharply, plummeting below $30 in 2011.

In 2011, RIMM was plagued by service outages, and they weren’t unique to any particular area of the country. They were worldwide. Consumers took that as the chance to jump ship, and they did so in droves.

The outages could not have come at a worse time—the last episodes happened within days of Apple’s iPhone 4S release. Google’s Android-powered smartphones were also gobbling up market share.

What Went Wrong

When BlackBerry first hit the market in 2003 it became a hit because of its email capability, soon earning the nickname ‘crackberry’ among business professionals glued to their work.

Then something completely unexpected happened in 2007. Apple’s iPhone. The attractiveness of Apple became clear, with another popular mobile phone maker, Palm, also losing market share and going out of business.

RIMM’s main problem was failing to manufacture products that held consumers’ attention spans. Yes, RIMM did an excellent job retaining its core base of customers – many people still carry BlackBerrys – even if just as back up to whatever other mobile phone they keep with them.

BB10 to the Rescue

BlackBerry 10 has received decent reviews from those who’ve had the pleasure to toy with it. A plus we continue to hear is that its interface is impressive. The question remains over whether it can be a true contender to Apple and anything powered by Google’s Android OS.

We think the idea of the company licensing or selling its products or software will be the catalyst to a turnaround. Some of the names that have been bandied about include IBM (NYSE:IBM), Samsung, Nokia and Microsoft (NASDAQ:MSFT).

Until then, RIMM is only a long term play for those who can stick it out through a disappointing few quarters of sales for the BB10. The company has placed too many eggs in one basket by putting so much hope on BlackBerry 10. RIMM has arrived awfully late to the smartphone game, and it will take time for sales of its flagship to gain the traction it needs to maintain its current stock price.

Recommendation: We recommend a quick short-side trade in RIMM following the Jan.30 release of BlackBerry 10. The recent run looks like a classic “buying the rumor” frenzy and one that is likely to run out of steam when traders “sell the news.” This is a very risky trade but having observed a very similar chain of events with Palm and Nokia in years past, the risk/reward is compelling.

Options Alternative: At-the-money March puts are a way to leverage the trade or take advantage of the opportunity with a smaller amount of cash in notional terms. Long term bulls may look at the same put position to protect their profits from a selling frenzy, should one occur, which may be more reliable than a stop loss if traders decide to get out before earnings at the end of March.

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.  Get in on the next trade and get 1 free month today by clicking here.