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Portfolio Activity - RIMM

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A Rapid Retreat for RIMM!

Although we were not able to monitor the financial markets on Friday, a brief look at the MCM Portfolio positions showed yet another unfavorable event. The price of Research In Motion (NASDAQ:RIMM) dipped below our recommended stop-loss point, triggering an exit order in the short (JUN-$70 put) portion of the bullish spread. The activity was due to news concerning RIMM's efforts to end a potentially costly patent dispute with privately held NTP Inc. Apparently, officials at that company have refused to sign a binding term sheet regarding a past agreement that allows Research in Motion to license NTP's software. This action suggests that NTP might renew its attempt to prevent RIMM from marketing new Blackberries or providing service for existing ones, thus the stock will likely remain in a neutral to bearish trend until an explanation emerges. Regardless of the reason, the issue is clearly under institutional (selling) pressure and that condition may be our only hope to recover some of the current debit in the play. Since the cost to close the short (JUN-$70) puts was roughly $0.95 per contract, the overall loss in the position is approximately $0.60 per contract, or $300.00. However, the sale of the long (JUN-$65 put) options will offset part of the loss and if the issue moves lower in the coming sessions, we may be able recover a sizable portion of the initial credit. Our suggested exit strategy for the remaining puts is similar to that which was offered for CEDC in the previous Blog; traders should wait for the downside momentum to subside before executing the closing order. Once again, there is very little time value remaining in the June options, so expect to watch the market closely in the coming week if you want to achieve the best price. In addition, a "limit" order may not be the best alternative but readers who are unable to monitor the stock during the next few sessions should consider a target price of $0.35-$0.50 for the JUN-$65 puts.

Needless to say, it's been a rough month and the sudden impasse in RIMM's settlement with NTP shows how unpredictable the market can be. At the same time, there is little to be gained by belaboring the point - we simply underestimated the potential volatility in this, as well as a number of other positions. Not to mention, many of the spreads that might have expired profitable have already been closed in the interest of conservative money management. The best we can do at this point is to move forward and initiate some major adjustments in the selection process and the way we manage the portfolio. Only in this manner will we be able to resume the consistent profits that readers expect (and deserve) from the MCM Portfolio.

MCM Staff

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