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.
Hi Desperate Investor,
ReplyDeleteI think you're very desperate. rimm is toast. Their only hope is AMZN, and they are going to wait until RIMM is dead before they pick them up because they know that nobody else will. Besides, nobody wants to deal with the headache, which will cost at least 4x the purchase price. Also, what patents are you talking about that would be able to help anyone? Do they have anything that is relevant anymore? they literally haven't innovated since the day they started the company.
btw - i think you'll win the bet though. nobody will buy RIMM pre-BB10 launch because RIMM really really thinks it's going to be "revolutionary" and no buyer is going to allow RIMM to factor that into the sales price. BB10 is so delayed that it won't be until 2013 anyway. RIMM won't run out of cash in the next 6 months either...so...I think you'll make at least $100 on this bet....just don't go betting on the actual stock ;)
ReplyDeleteI am not arguing that RIMM is going down and will be picked up for pennies on the dollar. The question is if the 7$ value is a fair bare bones value or if it is even lower and the time frame that we are looking at. I guess you agree with me on the latter. The former is debatable.
ReplyDeleteThis was a good call. The hedge worked!
ReplyDelete