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Large Move in Store for Research in Motion


A dip in volatility certainly seems likely.


Fourth quarter earnings season either starts tomorrow after the bell -- as Research in Motion (RIMM) releases -- or if you like looking backwards, third quarter earnings season ends tomorrow. But whether you're an optimist or pessimist, the company still reports.

I took a quick glance and saw 60 volatility or so in the near month's and prices that don't really look all that cosmic in dollar terms. The Oct. 80-95 strangle is about $5.00 with the stock near $86. High, not huge when you consider this pup can occasionally fly on earnings.

But then you look at the volatility charts it does seem wildly overpriced. 10-Day HV sits near 20, but even if you consider that just the low end of the typical range, the best you can say is it's about 30. Or at least has been around there for the past few month's.

Now, I don't expect options to dip to 30 volatility after the news, but 40 certainly seems likely. So RIMM is pricing in a pretty large earnings move, something along the lines of 10% or so, as of today.

There's about a 100% chance RIMM stomps the estimates, so the question you have to ask is: to what extent is that in the stock already?

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Position in RIMM
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