Don't get a RIMM job

I can remember ten years ago when I got my first Blackberry. I loved it, thought that I couldn’t live without it. I loved all the awesome things that I could do on my new smart phone that I couldn’t do on my old flip phone.  And the stock, man was that stock hot ten years ago. In the year prior to the great recession RIMM was trading at a high of $144.56. In fact in the short time frame from August 17 2007 to Nov 2 2007 the stock ballooned from 24.47 to 126.95.  Wouldn’t it have been great to have had purchased a few August 25 calls in November?  Even after the almost complete financial collapse RIMM did surprisingly well.  RIMM held up to hit a low of 36.34 in 2009 during the great selloff period, which was still 12 dollars up from the 24 bucks before the big balloon.  And if you were to hold the stock till September of that year you would have seen the stock bounce back to 87 dollars.   

I can remember four years ago, when I upgraded to the latest model Blackberry. It was perfect, a little smaller and a lot lighter. Wow is this nice. I could hardly feel it in my belt clip holder. But wait a minute, I can’t do anything new. Is this a new phone? I mean it feels like a new phone, it has a new set of ring tones and I think the calendar is new.

Consequently that was the last time RIMM would ever see a share price of 87 dollars.

Look back to September 2011. That was when the world realized that RIMM has not innovated anything in years. The stock was trading at its 18 month high of 29.68. Since then the company has had several lackluster releases of their Blackberry phones, and a sad attempt at a tablet.

The fact of the matter is the following; RIMM can never be a large player in the mobile industry anymore for three simple reasons:

First - It’s too late. Quite frankly, they missed their chance. I mean I have a phone that takes pictures when someone smiles and a tablet that doesn’t lock because it knows I’m looking at it. Now – to be fair to RIMM, I do not even know what Blackberry 10 has to offer, and you want to know why, because I don’t care.  They have been out of the loop for so long they are no longer thought about.

Second - my first blackberry was purchased by my business. They gave me the phone and I learned to love it. I started hating it after they took it away and I was forced to get a new phone. The point being, RIMM used to have a large business customer base. And this of course is one of the reasons the stock has not fallen farther. But as I have witnessed in my own business, Blackberry is not the only choice of phones now. Businesses are starting to allow their employees to choose between Android or Blackberry.  I have heard from a few friends that their business allows them to use their own phone to access corporate networks.

Third - developers do not develop apps for blackberry. Plain and simple. Point blank. Put a period on it.  Let me repeat, developers do not focus their attention on blackberry.  You can tell this by the number of apps that are available in the app store.  And let’s face it we love our apps.

So now that I have proved, in my humble opinion, that RIMM is no longer relevant and will continue down this path, let me show you how to trade it. RIMM closed today (Jan 14^th) at 14.95.  That is almost four dollars up from where it was last Friday. There has been huge volume on this stock - both buying the stock and in the options market.  I think this stock is way overbought and stretched way too far. When the crap hits the fan next month with the spending sequester, this stock is one that will take a beating by short sellers and profit takers. Let’s not forget that last week RIMM lowered guidance.

For starters, if you currently own the stock watch it and the first sign of weakness sell it for a profit. In fact, I would put a trailing stop in so that I can lock in the gains. I am not saying that the stock won’t climb while this buying frenzy is going on, but I would definitely sell it before March 1. That is when the automatic spending cuts from the fiscal cliff are set to kick in.

There are two ways to play the downside. If you like options then I suggest playing the vertical spread listed below. I don’t recommend selling stock short. There is a lot of risk in doing so but I would be willing to sell 100 shares short when we get closer to the debt ceiling debate and spending cuts debate.

A good bet and the one that I prefer would is the March 16^th 13/12 vertical put spread for a debit of 34 cents each.  This approach caps your losses and at the same time can generate a return of close to 200 percent.

Capital Required	34.00
Max Profit	66.00
Return %	194.12%
Break Even	12.66
Max Risk	34.00