Vol Spikes On Analyst Takeover Talk; Is Samsung Scared?

Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market

This is a vol note on an abrupt reaction to an analyst's comments. Let's start with the news, then move to the vol analysis.

TORONTO (AP) -- Shares of struggling BlackBerry maker Research in Motion Ltd. jumped Wednesday after Jefferies analyst Peter Misek said Samsung could be interested in licensing RIM's new BlackBerry 10 software or even buying the company.

Samsung Electronics Co., the world's largest mobile phone maker, currently relies on Android software made by Google Inc. for its smartphones. But the company may be concerned that Google will make better versions of Android for its own smartphones or stop licensing its Android software to other handset makers. The online search giant bought phone maker Motorola this year.

So Misek believes Samsung is examining possible backup software options. He thinks the Korean company recognizes the increasing importance of software and the danger in not owning the software on its phones.

Meanwhile, RIM is reviewing options as it tries to turn around its business.

RIM has hired J.P. Morgan and RBC Capital Markets to help it evaluate strategies, including possibilities of partnering with other companies and licensing software.

Samsung said in January it wasn't interested in buying RIM. RIM's software has fallen behind flashier phones like the iPhone and phones running Android. However, RIM says its much-delayed new BlackBerry 10 software will be thoroughly redesigned for the new multimedia, Internet browsing and apps experience that customers are now demanding.

Source: AP via Yahoo! Finance; RIM shares jump on analyst's Samsung speculation , written by Rob Gillies.

Very interesting. It seems that for quite a while now, the interest in RIMM has not been as a going concern, but rather as a takeover target. The idea that Samsung is now in a position of fear (due to GOOG's purchase of Motorola), gives this story a little more juice... A little more...

Let's look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see the horrific performance over the last six months. RIMM has been dying as its market share has been snapped up by Google and Apple. The 52 wk stock price range is [$6.56, $33.54]. Here are some stark figures of stock performance:

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

6-month performance: -54%
1-year performance: -65%
2-year performance: -86%

Ouch...

On the vol side we can see how the implied has popped today off of the news. What's interesting is that as the stock has been fading away, the short-term realized vol (HV20™) has been dwindling down as well. In English, the stock's decline of late has been slow and steady -- no over reactions, just kind of... disappearing. HV20™ is calculated close-to-close, so that blue line will pop tomorrow (off of the move today). The 52 wk range in IV30™ is [49.29%, 97.04%], putting the current level in the 58th percentile.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

Two phenomena standout to me in this image.

1. The upside skew is bid across the front three expiries (note that the red curve represents the weekly options). In English, the option market reflects substantially more upside risk (potential) than downside risk. That risk profile is more acute in the near-term relative to the medium term (Sep options).

2. There is a monotonic vol increase from the back to the front. In English, the option market reflects greater near-term risk (overall) than medium-term. This is pretty odd b/c the next earnings release for RIMM should be mid-Sep, but likely (possibly) inside the Sep option cycle. So, a vol event is embedded in the Sep options, yet Aug (and Aug weeklies) are priced to higher vol. As I stated earlier, this company's stock price now exists as a takeover target rather than a going concern. Of course, if their new phone is awesome, that could all change.

Finally, let's turn to the Options Tab for completeness.

We can see the monthly vols across the top as well as the vol increases (those are vol point changes not percentage changes). We can also see the order flow -- nearly 17,000 Aug(W) 8 calls have traded today on existing OI of just 3,325. Most of those contracts appear to be purchases. The 25,000 (ish) Aug (monthly) 8 calls that have traded today appear to be sales (IMHO).

Ultimately, RIMM has seen days like this where vol rises, the stock moves up (a little), order flow in the calls increases, but each time it has ended with a thunderous silence. Maybe this time will be different?... But I do have one question beyond that... If Samsung is scared that they need to own a phone maker, why would they choose one that's dying?

This is trade analysis, not a recommendation.

Written By: Ophir Gottlieb