Thursday, October 27, 2011

Research in Motion (RIMM) - Earnings Vol in Back and Elevated Vol in Front

RIMM is trading $20.71, down small with IV30™ down 0.5%. The LIVEVOL® Pro Summary is below.


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Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market.

RIMM has had earnings in the last two Decembers (12-17-2009 and 12-16-2010) following earnings releases in September. This year RIMM had earnings on 9-15-2011, so it follows that it may have earnings this December as well. The vol in the Dec options (82.62) is elevated to both Nov (78.55) and Jan’12 (73.07), so, in English, it feels like earnings are due out again this Dec.

Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the chart portion, we can see three gaps down in stock price, the last two driven by earnings reports. Over the last couple of years (or less), RIMM has dropped from a $75 stock to now potentially going into the teens. The reasoning has been pretty simple, they’re not selling well relative to their past or projections – Apple is dominating the market and Android (Google) phones are also taking market share.

On the vol side we can see that the IV30™ is now elevated to both the short-term and long-term historical measures. Specifically:

IV30™: 80.37
HV20: 73.10
HV180: 66.25

Let’s turn to the Skew Tab.

We can see that the Dec vol lies on top of the Nov vol – again, this looks like a reflection by the option market of an anticipated earnings report.

Finally, let’s turn to the Options Tab for completeness.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. But, I do make note of the 52 wk low for RIMM, which is $19.29 and the fact that the stock gaps down tend to be preceded by quiet(ish) stock movement. While owning the Dec options (earnings event), especially the downside seems reasonable (hey, the 4mm Apple new iPhones that sold must have had some effect on RIMM, no?), I also like selling that elevated IV30™. Having said all of that, being naked short options might be a touch risky as well.

This is trade analysis, not a recommendation.

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