Strategy for Research In Motion

Not to beat a dead horse, but one can't help but notice the number of very large defensive options trades on RIMM today heading into the close and the company's earnings release.

Today's action saw tons of activity in the June month, with options traders snapping up puts, buying collars or selling upside calls, all in an effort to buy protection. Both the July 70-strike and 65-strike puts were particularly active, with a respective 57,000 and 28,000 contracts having traded hands today.

And perhaps all the bearish activity is with good reason: RIMM's average four-quarter move the day after earnings has been 17%. We discussed on last week's show how a put spread collar, that is, selling the June 90-strike call to buy the June 80/70 put spread, could protect you from losses. With the stock now trading at $76, that strategy would make little sense today.

Dan Nathan, collar guru and chief derivatives strategist at Phoenix Partners Group, and architect of said strategy, has an alternative for those who missed the bus but remain faint at heart: Sell the June 85-strike call for $1.10, and buy the June 70-strike put for $1.35, for a total cost of $0.25. The strategy, to be used in conjunction with a long position, would protect RIMM holders below $70 (down 8%), but would cap gains at $85, or 11%.

The clock is ticking.

Questions, comments send them to us at: optionsaction@cnbc.com

Contact Options Action

  • Showtimes

    Fridays, 5:30p ET
    Saturday, 6a ET
    Sunday, 6a ET
  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Latest Video

Sponsored Related Links

More on thinkorswim by TD Ameritrade

  • Make sure you’re always keeping up with the market with up-to-the-minute news and breaking stories. Move on possible breakout stocks and options with potential opportunity. Plus, get in-depth analysis on futures and forex in one seamless, integrated experience. Join TD Ameritrade and trade commission-free for 60 days + get up to $600 cash.

You Make the Call

  • Options Action: NWSA

    Mike Khouw, Options Action trader, shares his view on News Corp stock on the heels of testimony from Rupert Murdoch before British Parliament.

  • Do you have a question for the Options Action team? Options Action selects a viewer's question and gives the answer on the show's Make The Call Web Extra video.