Are the Lows In for Research in Motion?

With earnings due this Thursday, implied volatilities in the June weeklies is off the charts, pushing to near 130. Back month IV remains more muted, with August trading in the mid 70s.

Research in Motion has nearly $3.40 per share in cash, and earnings are expected to be flat. Rumors of potential takeouts by Amazon or others are always swirling, as is the potential for a company breakup.

Monday's price action is also encouraging, with the stock looking like it will put in a key reversal day. Given that Research in Motion is being valued at less than 6 per share ex-cash as an ongoing concern, I think anything but a earnings debacle will be met with a relief rally.

Probabilities favor a move to the upside at these levels, and with implied volatility of the weeklies so high, strategies that employ selling these options in a spread format should be favored. I look for Research in Motion to move higher post earnings on Thursday, with a close of 11 at August expiration.

I am buying August 9 calls and selling June 10 calls for .81 debit to position for a bullish move along with profiting from a flattening of the term structure of volatility post earnings.