RIMM Continues to Fall

If You Made the Play (and some did) Take Profits!

By Bryan Bottarelli
Tuesday, December 26, 2006 9:47 AM EST
Tue, 26 Dec 2006 14:47:00 GMT

Dear Bottarelli Research Member,

Good morning — and I hope you had a relaxing and enjoyable holiday weekend.

As we get set to begin a holiday-shortened week of trading, I’d expect the next four days to consist of low-volume trading action. I’ll get more into that in a moment. But first, I’d like to follow up on the Research in Motion (RIMM — NASDAQ) position that I did NOT trade on Friday. Last week I wrote,

“As you know, Wall Street has been stuck in the habit of punishing stocks that report great earnings. It’s your classic ‘sell on news’ pattern — and it has been very prevalent in stocks here in Q4. So I’m not going to lie: I was tempted to play put options this morning on Research in Motion (RIMM – NASDAQ) when I noticed that the stock reported great earnings and jumped $8.00 higher in pre-market activity. It was my inclination that RIMM would initially jump — but then fall back lower as the day progressed. And thus far that thesis has been correct — as RIMM has trimmed an $8.00 gain to a $2.50 gain. To be honest, I wouldn’t be surprised if RIMM closed the day in the red, but as I run the numbers on the RIMM options string, the risk/reward scenario just isn’t in our favor”

As it turned out, this trading thesis was entirely correct. The RIMM January 135 Puts (RFY MG) that I highlighted in the alert traded as low as $3.30 that day. And as I write today, RIMM is down another $2.76 and they’ve hit a high of and as high as $9.50 per contract. Now here’s the reason that I bring this up…

RIMM

On Friday evening, I was out to dinner with my wife and daughter when I bumped into a Charter Member who said that he went ahead and made the RIMM play. If you decided to go ahead to make this play as well, then it’s definitely time to take your profits off the table! The puts you entered for around $5.00 are about to break $10.00, good for a clean double in two trading days. If you made the RIMM play, then take your profits and sell the puts at market now!

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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