Research In Motion is the Apple of My Eye: Four Reasons To Be Bullish on RIMM

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A couple of weeks ago, I shared one of my trades on RIMM with our community. The trade was a naked put using the weekly options that expired this past Friday.

When you buy a put, you pay a premium and you have the right to sell at specific price. It’s just like insurance – if the value of the stock goes down you have coverage, but that coverage comes at price – the premium that you paid. When you sell a put, you have an obligation to buy the stock at a set price. But, you also get to keep the premium. When you sell puts, you are the insurance company.

Apple Inc posted a phenomenal quarter and reignited a tech market that felt like it was losing a little steam. The company posted so many records this quarter that is felt as if Drew Brees were the CEO, instead of Tim Cook.

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What The Analysts Expected

The following represents what analysts expected in first quarter of the fiscal year.

• Revenue – $39.2 Billion
• Earnings Per Share – $10.19
• iPhones Sold – 25 to 36 Million
• iPads Sold – 13.5 Million
• Macs Sold – 4.13 Million

Revenue of $39.2 billion and earnings per share of $10.19 would represent year-over-year growth of the first fiscal quarter in 2011 of 47% and 58%, respectively.

Just because you call yourself a securities trader doesn’t make you one in the eyes of the Internal Revenue Service.

In fact, Uncle Sam is predisposed to consider you merely a hyperactive investor—and thus deny you more favorable tax status—unless you meet a number of criteria that are frustratingly open to interpretation.

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You read that right: the tax code contains no actual definition of trader tax status.

Instead, the IRS has issued guidelines that the tax courts have expanded upon with case law, most of which denied tax appeals by traders.

What we’re left with is a blurred image, like a photograph of a trader taken from a speeding car.

2008 was a year to learn how to trade bearish. 2009, how to trade bullish. 2010, how to trade in a range. Through the summer of 2010 the market moved in a range and finished the year with a nice bullish run. I expected the same for 2011 but never got the bullish run at the end of the year.

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As it turned out, a nice wide IC placed at the beginning of the year would have given a bit of a scare but would have returned a very nice profit.

So what would you do at the scary times? Would you have the conviction to stay the course? Would you have a plan to compensate? Would you know the outcome because you planned the trade and traded your plan?

How important is achieving your financial goals to your investing or trading activities? Should your goals be strictly a percentage profit target? Where do you start?

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You’ve heard the catchy comments about goal-setting;

• “If you don’t know where you’re going, how will you know when you’ve arrived?”
• “A goal without a plan is just a wish.”
• “What is not started today is never finished tomorrow.”
• “If you can find a path with no obstacles, it probably doesn’t lead anywhere.”
• “Success is not final, failure is not final; it is the courage to continue that counts.”
• “You are never too old to set another goal or to dream a new dream.”
• “Set your goals high, and don’t stop till you get there.”

When serious investors approach goal-setting they often set a profit target to the exclusion of all else. This is not only short-sighted, but a dangerous attitude with which to tackle the task. There are other specific and measurable activities that lead toward the ultimate goal of making money. Many who have walked this path before us have identified them and written their goals accordingly.

Here I offer some general activities that work well within goals.

The anticipation of volatile stock movements can instill fear in the most weathered stock trader. Market mavens tout stock picks prior to earnings announcements and with abandon, these “hot tips” are disseminated through media channels. Just look at the all the predictions on stocks that are moving higher based on anticipation of the event, to only have to event come and not meet expectation, causing the stock to lose ground.

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In spite of growing concerns about the global economy, the market continues to march steadily higher. This is driving to a market that feels a little over bought, but continues to do well. The main drivers this week have come from a barrage of earnings that for the most part have been good. IBM, Microsoft, Intel all beat analyst expectations.

Google, on the other hand missed their estimate badly on both earnings and sales. The reason for the miss was both increasing costs and well as some foreign currency issues. GOOG was down $53.57 a share, to close at $586 on Friday. JPM, C and GE also contributed to the weak performances with their respective reports.

On October 4th of last year, the C2 Options Exchange (C2) began trading pm-settled electronically-traded S&P 500® Index options under the ticker SPXpm.  C2 is an all-electronic exchange and a wholly-owned subsidiary of CBOE Holdings, Inc.

This means SPXpm options are 100% electronically traded in a very transparent market.  Although only around for a few months, SPXpm volume continues to pick up as can be seen in the chart below showing weekly volume in SPXpm options.

The future of the world economy is very uncertain. European sovereign debt is scaring many investors and policy makers. Unemployment, although improving in the short-term, is still a major problem. Housing prices continue to languish.

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It seems the only certainty in today’s market is volatility. Some might even go to the extreme of saying that there is a coming economic maelstrom that is going to wreak havoc on the financial system and do major damage to the unprepared. The great news…there is a form of insurance that can be used to protect the value of your investment in equities.

Historical Volatility and Implied Volatility are a topics that often cause some confusion.

One of the specific misunderstandings is in the comparison of implied volatility to historic volatility.  I recently had a conversation with someone who noted that they used a comparison of the implied and historic volatility to make trading decisions.  They also commented (very incorrectly) that only days like the May 6, 2010 “Flash Crash” could affect historic volatility.  Following is an  excerpt from our conversation:

Regarding changes to historic volatility, it takes a lot less than a day like the May 6, 2010 to move it.  For example, the current 30-day historic volatility for the SPY is 29.3%.  If you just take one specific day out of the calculation (11/30/2011) the historic volatility drops to 25.5%.  Just one day – that happened back in November – can make the historic volatility drop by nearly 4%.  

As investors/traders of the stock market we may believe that nobody has ever had to deal with this type of news-driven market before. A serious stock market student will know that there is nothing new on Wall Street; that the stock market is nothing more than “human nature on parade.” – William J. O’Neil  How to Make Money in Stocks (HTTMS.)

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What causes distortion around the end of the year? There are a handful of reasons that year-end is an especially tricky time for anyone to take new positions. Of primary influence is that many trades are made for tax considerations. It isn’t unusual to find leaders lie idle or correct while laggards suddenly seem strong. Volume dissipates through the year-end holidays as well, as fund managers take time from the markets, too. January has often been a time of general market sell-offs, which add to the difficulty for retail investors. Don’t be surprised to see one big “up” day followed by a big “down” day, only to be repeated. This type of fake-out action can cause short-term traders to chew up much capital in response.