A RIM Do Over?

Richard Croft
August 13, 2012
2 minutes read

The shares of Research in Motion (TSX: RIM, Friday’s close $8.22) have moved higher in the last few days with the biggest spike in price occurring last Wednesday. You may recall my post on June 30th where I talked about a RIM death spiral and to my mind I see no change in the fundamentals of the company that would alter my longer term opinion.

Still, you cannot ignore the market and in the case of RIM, the technical picture looks pretty good. The shares have been making higher highs and higher lows. That is a classic bullish pattern which is likely based on the view that some white knight will step up and buy the company.

That seemed less likely only a month ago and even today is at best a 50-50 proposition! But RIM shares spiked when the market got wind that Best Buy’s founder Richard Schulze was willing to offer US $8.5 billion to buy that troubled company.

I am not sure the price spike was warranted. It is unlikely that RIM will get an offer from one of its founders to take the company private. More likely if an offer does come, in it will be from a competitor and to my mind, nothing has changed that would encourage a competitor to enter the game.

At the risk of being seen as the man who cried “chicken little” I would suggest that anyone who did not take a position based on the June 30th post to see this latest price rise as an opportunity to implement a bear call spread with higher strike prices. Try writing the Dec 9 calls while buying the December 12 calls for a net credit of 85 cents per share.

If you did put on the short RIM Sept 6 calls long RIM Sept 10 calls for a net credit of $1.45, you might consider closing the spread at a small loss (i.e. approximate cost to close spread would be $2.20) or rolling up the short calls. The latter is referred to as a repair strategy and would require you to re-purchase the Sept 6 calls at $2.50 or better and write the Sept 8 calls at $1.00 or better.

Richard Croft
Richard Croft http://www.croftgroup.com/

President, CIO & Portfolio Manager

Croft Financial Group

Richard Croft has been in the securities business since 1975. Since February 1993, Mr. Croft has been licensed as an investment counselor/portfolio manager, operating under the corporate name R. N. Croft Financial Group Inc. Richard has written extensively on utilizing individual stocks, mutual funds and exchangetraded funds within a portfolio model. His work includes nine books and thousands of articles and commentaries for Canada’s largest media channels. In 1998, Richard co‐developed three FPX Indexes geared to average Canadian investors for the National Post. In 2004, he extended that concept to include three RealWorld portfolio indexes, which demonstrate the performance of the FPX portfolio indexes adjusted for real-world costs. He also developed two option writing indexes for the Montreal Exchange, and developed the FundLine methodology, which is a graphic interpretation of portfolio diversification. Richard has also developed a Manager Value Added Index for rating the performance of fund managers on a risk adjusted basis relative to a benchmark. And In 1999, he co-developed a portfolio management system for Charles Schwab Canada. As global portfolio manager who focuses on risk-adjusted performance. Richard believes that performance is not just about return, it is about how that return was achieved.

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