Bulls vs. Bears: Research in Motion, Limited (RIMM)
Those who agree with Cramer and expect downside (or at least limited upside) in RIMM might be trying to buy intermediate-term put butterfly spreads by buying the June 80/65 put spread and simultaneously shorting the June 65/60 put spread. Essentially, this butterfly consists of one long June 80 put, two short June 65 puts, and one long June 60 put. This spread is currently trading near $6.70, and that debit plus commissions is the maximum risk to this strategy, while the maximum reward is $8.30 minus commissions. This spread will be profitable if RIMM shares are trading below $73.30 at June expiration.
On the flip side, investors who don’t agree with Cramer’s skepticism could be buying bull call spreads. Investors would do this by, for example, buying April 60/75 call spreads for $9.30 each, which is the maximum amount they can lose (plus commissions). The maximum profit is $5.70 per spread, or the difference in strike prices minus the premium paid. The call spread will be profitable if RIMM shares are trading higher than $69.30 at April expiration.
Options give people options, and these are just two of the many strategies that people employ to reflect their investment opinion.
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