Fri Sep 14, 2007: 31% RIMM Call Spreads

Here's a limited-risk way to profit if Research in Motion stock (NASDAQ-RIMM, 87.26) closes below 95 on option expiration day October 19th.

By selling October 95 calls and buying October 100 calls, an option writer could receive a net income of $120 per spread versus a margin requirement of $380, for a five-week income of 120/380 = 31.6% ignoring commissions.

Chart of RIMM Stock

If the stock finishes above 100 the loss is limited to $380 per spread no matter how high it goes. Between 95 and 100 the loss is $100 per point, less the $120 income received up front.

Where is the breakeven point? 96.20

Option writers who are bearish on RIMM and would be happy with that safety margin might find this trade attractive now.

Until next time, best of luck with your option investments!