Feb

12

RIMM: Doubling Up With Caution - And BUY Recomendation

February 12, 2008 |

Research In Motion (RIMM) Stock ChartResearch in Motion (RIMM) is a great company. A great Price to Earnings Growth (PEG) ratio of just a sliver above 1. People seem to be buying their new curve phones like crazy — at least those who can’t justify purchasing an Apple iPhone (AAPL) or don’t want to switch out of their carrier.  Blackberries used to be associated with the workaholic.  However, even teenagers are liking the advantages of a rugged QWERTY keyboard that can be had on the cheap.  Small and large business are making them standard issue for their employees.  I think the stock market has punished this great company too much — and those who have bought on the downside will benefit.  I stand at a BUY recommendation for Research In Motion.

Said that, I sold RIMM stock today (a 1,000) of them.  Why, should you ask?  Simple, I had too many options of them and I do not really feel like carrying a margin.  Let me tell you a story, which I hope you do not emulate, but I hope you find useful.

A few weeks ago I bought at 92.  I thought it was a bottom.  But this market doesn’t seem to show a bottom for a long time, so the stock went down into the $84 range.  That is where I bought the same amount of stock in deep-in-the-money options for March 2008 (I should have bought a longer horizon, but they where prohibitively expensive).  I thought about doubling up — a risky strategy that I do not think makes any sense:  if it is going down what makes you think that by doubling up it will go up.  That is why I went for the options.  I really thought it was going up.  I really thought the market ha given a bottom to RIMM when it hit $84.  But I wasn’t willing to bet the house on it (literally, a small property could have been bought with that exposure).
Yesterday the stock climbed, and it did this morning as well.  I sold my stock at $94.8 - with a few bucks of earnings, but kept my options which have climbed almost $10 in value.  I think it has a few more dollars to climb in the next couple of days — that is, if the market doesn’t crash badly again. I reduced my exposure.  I may be able to sleep better at night knowing that if RIMM goes belly up my loss is not so severe.

Said that… this is not the best of mitigating risk.  It is only one of them.  Some may argue that the option is a great risk already.  I just think that before “doubling up” on a falling stock (or hoping for a bottom), consider limiting your risk.  Options may be a way of doing so - not the only one, not the better one, just one.


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