Wednesday, October 5, 2011

Research in Motion (RIMM) - Vol Hits New High, Skew Turns to Takeover Rumors

RIMM is trading $23.53, up 12.1% with IV30™ up 18.2%. 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. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service (SMS), Internet and intranet-based applications and browsing.

The stock has been plummeting of late, with a legitimate worry as to the relevancy of the company's existing products moving forward. I found this stock using a custom scan searching for names where IV30™ is up at least 10% on the day. The news driving the vol today seems to surround takeover rumors. Here's a snippet from a CNBC news story:

Speculation that Research In Motion could be a takeover target caused shares of the BlackBerry maker to soar on Wednesday.


HTC, Microsoft and Vodafone are among the companies rumored to be looking at RIM as a possible takeout target, options trader Jon Najarian said from the Chicago Mercantile Exchange.
Source: Pros Weigh Research In Motion Takeover Talk

Well there you go... The scan details are below with a snapshot if you want to build it yourself in Livevol® Pro.

Custom Scan Details
Stock Price GTE 10
Average Option Volume GTE 1,200
Days After Earnings GTE 5 and LTE 60
IV30™ Percent Change GTE 10%
IV30™ GTE 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The RIMM Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

At the end of April this was a $56 stock. It's trading in the low 20's as of this writing. Through all of that, the IV30™ never closed above 90 (52 wk high is 89.08). With the pop today, RIMM IV30™ is now in the mid 90's and is above the short-term (and long-term) realized vol.

IV30™: 94.92
HV20: 84.05
HV180: 62.75

It is interesting to note that the HV180 has risen from ~37 to now in the 60's.

The Skew Tab snap (below) illustrates the vols by strike by month.

Keep in mind that the red curve represents the weekly options (expiring in two days and an hour). The upside is bid in both the Oct weekly and Oct monthly expos -- the option market reflects the upside potential in the underlying. I've included a snapshot of the Oct monthly expo skew chart as of 9-12-2011 -- we can see the upside vol was not as bid as it is today (compare to yellow curve above).

Finally, let's turn to the Options Tab.

Possible Trades to Analyze
1. With the vol elevated on rumors of upside moves (a takeover), one way to examine this vol is to analyze a downside put sale, either naked, in a vertical, in a calendar or in a diagonal. Taken a step further, a ratio spread inter or intra month seems like a reasonable position to examine. The 52 wk range for RIMM is [$19.29, $70.54].

2. Similarly, an upside vol sale covered with options or stock is a potential position to analyze. Naked upside feels a touch icky given that this was a $70 stock less than a year ago, but ya know... The upside is bid, so the vol is elevated, so...

This is trade analysis, not a recommendation.

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