Options Traders Think Less of RIM/IBM Rumor Than The Stock Gain Implies

Research In Motion Ltd. (NASDAQ: RIMM) has been higher all day on reports and rumors that International Business Machines Corporation (NYSE: IBM) may be interested in acquiring RIM’s enterprise services business.  Bloomberg had earlier said that IBM has asked about possibly acquiring RIM’s ES division that supports the BlackBerry handheld devices.

We wanted to take a look at what the options market is telling us.  First and foremost, remember that RIM is constantly the subject of buyout or deal rumors of some sort.  A report from Jefferies this week put RIM’s best option as being a deal with Samsung.  Again, these are not necessarily rumors that a total buyout of RIM is coming down the pipe.

After we have seen a gain of 5% to $8.21 in late afternoon trading this Friday, the trading volume with about 75 minutes remaining in the day is 25.5 million versus an average day’s trading volume of 20.3 million shares.  At least volume is stronger on this report.  But as far as the options go, it really seems that the options traders are unenthusiastic here.

August call options expire next Friday (August 17) and the $9.00 calls have traded some 13,148 contracts against an open interest of some 25,542 contracts.  The last print was on the offer, but only at $0.09 per contract.  That means that on a day where the volume is already 125% of normal, that a base case trade percentage is indicating only a 10% to 15% chance more or less that the stock will really rise to $9.00 or more.  The $8.00 put for August trades at $0.23 and it has traded some 14,352 contracts so far today against a prior open interest of 25,475 contracts.

September options do not expire until September 21, 2012, and these are indicating a much larger possibility of a gain due to the added time value.  The problem is that more volume has been in the $8 Calls with almost 12,700 contracts trading hands versus only 5,472 contracts in the $9 call strike.  That gives those options a pricing of much closer to 50/50 for the stock to rise to $9.00 between now and then.  Just keep in mind that the $0.48 price implies that the stock would have to rise to above $9.48 for intrinsic value to pay off.

The options traders are not betting on a buyout of RIM, at least that is our take.  That being said, the chances of the stock going back up to $9.00 by September 21 seems much more likely than by next Friday according to options pricing. Unfortunately, the trading volume just doesn’t support a massive expectation that RIM is about to enter is next great bullish pattern.

JON C. OGG