RIMM is at the top of the NASDAQ 100 Hot List tonight. Let’s take a look at how it can be played. The focus is on pre-defining a potential loss before jumping in. This video shows how our Plan B bull call spread can be used to establish a long position.

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Working the Numbers

We can estimate the cost of the bull call spread using the numbers from today’s close.

Buy 1 November 110 CALL @ $15.59 x 100 = $1,559.00 debit + commission
Sell 1 November 125 CALL @ $5.17 x 100 = $517.00 credit - commission

Cost of bull call spread = $517.00 - $1,559.00 = $1,042 before commission

If RIMM closes at $125 at expiration, the November 110 CALL will be valued at $15.00 x 100 = $1,500.00 while the November $125 call expires worthless, producing a return of $500.00 on $1,042.00 before commission.

If RIMM closes above $125.00, the net return will be limited to $15.00 x 100 = $1,500.00 per call.

If RIMM closes under the stop calculated by the trading system, the position will be liquidated.

The maximum loss to the trader is $1,042.00 plus commission.

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