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Everyone Watching RIMM Earnings

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A sudden burst/collapse in a stock of this psychic importance obviously has ripple effects across the Street.

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It's earnings season, and we get the ball rolling tonight with a pretty high-octane, high-profile name in Research in Motion (RIMM).


Click here to enlarge.


And pretty sizable options bidup, to say the least.

What does the options board suggest as an over/under for the magnitude (not direction) of the move? Well, the first thing we have to do is guesstimate just where that option volatility might go tomorrow after the news is out. And this is a tricky one.

Normally, historical volatility (the blue line) is something of a guide, but that is questionable in RIMM right now. The stock itself is pretty much stuck in this range ahead of the news, so this statistically calculated number is misleadingly low at about 37 volatility. Or is it? Other than the earnings-related blips over the course of the year, RIMM stock does actually trade at a mid 30's volatility clip.

And the options? Well, they tend to trade a bit higher than in "dark" times. But not all that much higher. Volatility in the Oct trades is for about 81 now, while November volatility changes hands at a mid 60's clip. And as per above, past history suggests volatility in both may dip to the low to mid 40's tomorrow.

So what kind of move does that imply tonight? I just heard $15 on TV. Sounds a smidge high to me, but really just a smidge. I come up with about a $13-$14 move using a 45 volatility. I suspect volatility will go lower than that in a rally, and higher in a decline. But remember these are all estimates: No one knows exactly where option volatility will go.

Why is this relevant even if you have no RIMM position? A sudden burst/collapse in a stock of this psychic importance obviously has ripple effects across the Street. But if this magnitude move is already expected, something within these parameters is relatively insignificant to the bigger picture.

Position in RIMM.
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