Is Now the Time to Buy RIM?
One stock that saw a surge of interest, and high trading volume, during Friday's abbreviated trading session was Research in Motion. Shares closed up over 13% on the day, following an analyst's upgrade and upward price target revision to $15.
Options traders were bullish as well. In one trade, a trader bought 11,055 March 18-strike calls for $0.47, while the stock was at $11.57. This is a bullish bet that the stock will climb at least 33% over the next 109 days. (You can track RIMM here)
Why so bullish? It all comes down to expectations for BB10, RIM's newest operating system.
Earlier last week, Jefferies upgraded the stock after a survey showed "a much more positive view of BB10 then we expected." And National Bank Financial upgraded the stock on Friday because they expect BB10 to launch in multiple countries on January 30th, with shipping starting soon thereafter. They said, most analysts' earnings estimates reflect a March launch date.
While some stock and option traders may be jumping into the stock here ahead of the launch, I am still hesitant. First, this could be a "buy the rumor, sell the news" scenario. RIMM is already up 87% off of the 52-week low it made on September 26th. That means the company will need to report fantastic earnings in order to stay ahead of expectations. And since the company's last earnings report showed significant declines in year-over-year EPS and revenues, buying into the stock now is a complete bet on BB10 turning the company around. Finally, it is important to note that BB10 will be released afterthe important holiday shopping season. This timing issue should serve to put it at a further disadvantage to competitors Apple and Google .
All of this said, if you do think BB10 will be a success, then buying the March 18-strike calls like this trader did is the way to go. Risk is limited to the $0.47 premium the trader paid, but the returns in the event that RIMM shows impressive earnings growth could be huge.
(Read More: All Those Tech Stocks You Hated? They're Booming Now)
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
Watch "Options Action" n CNBC Fridays 5:00 p.m. ET, Saturdays at 6 a.m. ET and on Sundays at 6 a.m. ET
Questions, comments send them to us at: firstname.lastname@example.org