If RIMM explodes higher, this is my entry
RIMM has been in the news a lot
lately, with its
patent lawsuit dominating the headlines. Volatility has been huge
over the last few weeks– and I have a feeling the party has just begun.
When looking at the one year chart on RIMM
(
RIMM |
Quote |
Chart |
News |
PowerRating), the first thing I notice
is a head and shoulders reversal pattern that has just been confirmed with
Monday’s close near $67.50. The other thing I notice is the relative weakness of
RIMM to the Nasdaq Composite
(
COMP |
Quote |
Chart |
News |
PowerRating) over the past 52 weeks, most likely a
result of investor angst and focus on the courtroom proceedings.
OK, from looking at the one year chart on RIMM I’m convinced
from a technical standpoint that RIMM will be moving higher from here. On top of
that, I also know that RIMM has about 14.5 million shares of its float
shorted–about three full days worth of average volume, which means this stock
could get a very nice short squeeze on any good news for the company. In fact,
I’m going to set a two-month price target of $92.00 per share on RIMM–which is
approximately the price it would be at had it simply matched the performance of
the Nasdaq over the past year.
So what will I be alerting DaytradeTeam members to do on RIMM Tuesday?
Well, as most of you know, I really hate risking a penny more than necessary on
a position. With RIMM shareholders waiting on pins and needles for the whim of a
judge to be passed down, it would be a big mistake to buy RIMM stock and risk a
full $67.50 per share, so I’ll be looking for limited-risk, bullish
opportunities on RIMM options instead.
Tuesday morning I’ll be analyzing the options chains on RIMM and looking to
alert members to either one of these two positions:
A Bullish Vertical Credit Spread that profits as long as RIMM stays above
$60/share for the next month (and only risks $3.40 in the process)
A Directional Call Trade that buys either the 80 or 85 call options for the
March or Jun 2006 expirations. These positions would likely produce a gain of
$6-$9/contract in the event that RIMM does get a short-squeeze higher, but only
lose $1.50-$2.00/contract in the event that RIMM completely falls apart to new
lows.
This is the way that I love to trade “home run plays”–use technical analysis to
put the odds in your favor, and common sense to severely limit losses in the
event things don’t go your way.
Andy Swan
Andy Swan created and
co-founded DaytradeTeam Service five years ago on a principle of empowering
individual stock and options traders with the techniques and analysis methods
typically reserved for elite professionals. His expertise in technical
analysis and commitment to educating members earned DaytradeTeam a top-ranking
among advisory services for several years.