Sponsored By:

Research In Motion (RIMM)

February 11, 2009

Dear Fellow Options Traders,

Research In Motion (RIMM) and Apple own the PDA market. Consumers around the world are steadily moving from simple cell phones to full-featured smartphones that can surf the Web and manage e-mail. This is a secular change that will continue for the foreseeable future.

RIMM is down almost 17% today on the announcement that its gross margins and Q4 earnings per share will be at the low end of the range. Current analyst estimates for fiscal year 2009 ending in February is $3.38. The company has $3 per share of cash.

Cisco (CSCO) just completed a $4 billion bond offering for the purposes of "aggressively" investing in the U.S., India and China. We have seen this before. The great companies invest during the downturns and emerge stronger and more dominant on the other side of the recession. CSCO is a company built in large part through acquisitions.

RIMM's stock plunge today is giving us an exciting opportunity, and we recommend selling the RIMM June 25 Puts (RUPRE) for 95 cents or higher. We believe that if RIMM approaches a $25-per-share valuation, there is a good chance it will be acquired.

Assuming analyst earnings estimates are about $3 in June and RIMM is trading at $25, the P/E would be about seven times if you subtract the cash. Even if you cut the earnings in half, the stock at $25 per share would be inexpensive given its market position and long-term growth prospects.

We believe selling the RIMM June 25 Puts is a way to make money in a world where the CBOE Volatility Index (VIX) stubbornly remains at near-"panic" levels.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader