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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

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

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