Motion in Research in Motion Options
Handheld device maker
Research in Motion
(RIMM)
, a company whose stock has received the redheaded stepchild treatment over the last six months, was seeing some interest in the options market today.
The activity appears to be triggered by a series of research notes issued in the last two days in response to growing skepticism of the company's relationship with media titan
AOL Time Warner
(AOL)
.
CIBC World Markets
wrote Wednesday that the companies' relationship was
on the rocks because RIM had unexpectedly and dramatically raised the price of its devices. "We believe this may force AOL to look for another device manufacturer to build a Mobitex device at a lower cost", wrote analyst Thomas Sepenzis. "We therefore feel that AOL may not order more devices from RIM, although it is too soon to tell at this time." This caused the stock to fall 9% on Wednesday. "I don't see anything that will energize the stock in the next six months," wrote Sepenzis.
Today, however,
Goldman Sachs
, whcih does underwiting for RIM, weighed in on the matter, saying that it believes the companies will continue to have a strong working relationship. "In our view, RIM is a strategic AOL partner and a key contributor to implementing the AOL Anywhere strategy. We are expecting this relationship to strengthen over time," the firm wrote.
SG Cowen
agreed with that notion saying, "We have heard from our sources that AOL is happy with RIMM and plans to work together in the future."
One floor trader says the research notes definitely gave an added boost to the activity in RIM options. The September 30 calls traded 9,108 contracts as compared with open interest of 19,844. The September 50 calls traded 9,118 contracts on an open interest of 12,840. However, the trader said that much of the activity could be pinned to one investor who made a "closing trade" in which he or she closed a position by selling a large number of the September 30 calls at $10 ($1,000).
Simultaneously, the same investor opened a new position by buying the September 50 calls at $3.10 ($310). Paul Foster, options strategist and editor at
1010WallStreet.com
in Chicago, said the bottom line is that the investor is looking for the volatility in RIM to fall and for the stock to remain where it is, or at least stay below $38. "Once the stock price moves above $38, the investor will begin to lose money," Foster says. Essentially, this is a neutral to bearish trade.
Shares of RIM traded up $2.13, or 6% to $36.86 in recent trading.
Meanwhile, Intel was receiving plenty of attention
once again ahead of its
mid-quarter update scheduled for today. The June 30 calls remained the most active, trading about 17,800 contracts on an open interest of 65,249, with investors paying between $1.80 ($180) and $1.90 ($190) for the premium. Although there's no clear-cut consensus among analysts about what Intel will say, option activity seems to indicate that Intel won't say too many negative things.
Intel shares traded up $1.18 to $31 in recent trading.