Wednesday, July 4, 2012

At the RIMM

So its not a secret that Research in Motion is at the verge of imploding and that almost everyone is betting against it. So I had to be the guy who took the wrong side of the bet and here I am writing about my strategy to wriggle out of a losing bet.

RIMM trades at approximately 7$. Given that it has about 4$ in cash, 3$ is patent assets and another 2-3$ in network asset, the overall intrinsic value of the hard assets should be around 10$ is you factor in 2$ in layoff charges and an additional 1$ of losses to be incurred in the next 2 quarters we are truly looking at RIMM at around 7$ as of Jan 1 2013.

Now about that bet. The bet goes, RIMM will not exist as a company by January of 2013. Its a 100$ bet and I have bet that RIMM will be around.

Given that they will not run out of cash by then and they will hold off liquidating assets until BB10 releases, we can safely assume that the only way RIMM will not exist in its current form is if they get bought out. Assuming buyout talk happen around September time frame to be able to close anywhere near Jan 1 2013, we can safely assume that RIMM will not be selling at the bare bones value of 7$.

So the question is how much will it go for? At the current book value of 19$ that is fast eroding, if we take away another 5$ and say the company sells for 14$ a share, I would have lost my bet of a 100$.

So here goes the gamble. Call options for Jan 1 2013 striking at 12$. I wish I had waited for the quarter report and bought the 10$ options but this is my hedge against losing the bet for now.