Using Friday's Options Activity To Get Ready For Monday's Market

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 |  Includes: AAPL, BBRY, HPQ, NFLX, OUTR
by: SA Editor Rocco Pendola
In addition to my own scans and watch lists, I use three main sources to follow options-related news: Daily Seeking Alpha columns by Frederic Ruffy, Interactive Brokers and optionMONSTER.
While I get great use out of these sources and have even made money thanks to them, you have to be careful not to chase the stocks or options they mention. Occasionally, you can find examples to capitalize on. Below I detail options brought to my attention by these sources and how investors might consider playing them - or the underlying security - if at all, during the trading week.
My attention spans most of Friday's trading day, including early in the session, so some information may change. As with all of my articles, use my suggestions and analysis as the impetus for future research.
Research In Motion (RIMM): It's tough not to lead with RIM, particularly because Ruffy mentioned some things in his Friday column that probably should not have hit the cutting room floor in my Q2 earnings post-mortem:

The top equity options trades so far are in Research In Motion (RIMM). Shares are reeling today, down 19.4% to $23.83, on an earnings miss and multiple broker downgrades. Options volume in the Blackberry-maker is 4X the daily average, with 364,000 puts and 189,000 calls traded in RIM so far. The top trades are a spread, in which the strategist bought 38,690 Jan 22.5 puts at $2.85 and sold 38,690 Jan 15 puts at 55 cents. A $2.30 net debit was paid to open the spread. The same strategist also sold 9,800 Oct 27 puts at $4 and 21,925 Jan 26 puts at $4.60, which are likely liquidating trades. In other words, in-the-money Oct and Jan puts were sold to buy the out-of-the-money Jan put spread. The position adjustment seems to be targeting another leg lower in RIM and comes as Barron's online writes today that "working capital needs" -- i.e. cash -- might now be a growing concern. RIM's cash on hand fell to $1.4 billion from $2.9 billion in the period and the company increased its credit facility to $500 million from $100 million, according to the report (emphasis added).

If you take nothing else away from the noise regarding RIMM, absorb this much: RIMM is not a value play. Articles such as this one by Seeking Alpha contributor Bubble Bust Investing look incredibly identical to ones that got published after RIM's most recent implosions. It's deja vu all over again.
The only way to open a long position in RIMM is in put options or, if you have experience day trading, swing trading or scalping stocks, as a dead cat bounce play. That's it. If you went long RIMM on this last dead cat bounce, you have losses if you got in too late. If you were lucky enough to get in closer to $21.60, take your profits.
For the record, Barron's is not reporting anything that RIM did not disclose on its conference call. I listened to the entire thing. In between the pathetic selling of BlackBerry 7, the forthcoming QNX and the failed PlayBook, RIM reported not only cash on hand, but slipped in the note about its credit facility.
RIM management has had some bad conference calls of late, but yesterday's takes the Ketchup-flavored potato chips. RIM continues to pass its implosion off on the idea that it refused and still refuses to rush products out to market. First of all, that's no excuse. If you cannot properly manage product timelines, shame on you. But, worse yet, RIM management remains too stubborn to do what Hewlett Packard (NYSE:HPQ) did by saying, in so many words, Apple (NASDAQ:AAPL) ate our lunch.
One of the only ways RIM management could have walked away from yesterday's call with any credibility is by halting consumer sales in all countries except Canada (out of symbolism) and the developing nations; focusing on enterprise worldwide; and restructuring its executive team, effective immediately.
Instead, It touted the horribly errant and misguided BlackBerry Music Service and spoke of the BlackBerry 7 "bridge" to QNX. All the while management portrayed QNX as a slam dunk, a notion that hardly jibes with reality.
I own RIMM January 2012 $15 puts. I'm sitting on a 50% on-paper profit, as I write. I'm waffling between selling them early next week (assuming a meaningful dead cat bounce does not occur) or waiting for the next leg down below $20.00 per share.
Coinstar (NASDAQ:CSTR): Interactive Brokers pointed to an instance of bearish options activity in CSTR Friday. As I often warn, do not mistake this for broad sentiment in the options market. The trade IB highlighted stands as the work of one person or firm. That's it. Other than the put spread noted in the article, volume in CSTR options ran quite light on Friday.
Of course, many investors might look to Coinstar as a way to play Netflix's (NASDAQ:NFLX) implosion. Simply put, I don't have an opinion, as I have only taken a sideline, surface-scratch view of CSTR.
If you were savvy enough to profit from NFLX on the long side up to $300 or on the downside to about half of that, I think you should play Netflix's demise by playing NFLX.
For instance, consider my example of a NFLX put trade from my $10,000 portfolio:

I bought a NFLX March 2012 $200 put for $19.70 when I first established the portfolio. I sold it for $26.00 and a $630 profit. As of this writing, that put trades for about $53.40. I left roughly $2,740 worth of profits on the table there.

Or, if you bought 100 shares of NFLX at $200 and sold them at $300 or shorted 100 shares at $300 and covered at $200, you have a sweet $10,000 profit.
In any event, if you have at least a few thousand dollars worth of profit from a NFLX trade - long, short or otherwise - I think it's wise to make a relatively small wager on a full-scale implosion. What Len Brecken "said" on Seeking Alpha months ago, all of a sudden, does not sound so crazy.
I firmly believe that barring an extraordinary event, particularly M&A activity or a major bail-out type partnership with a company like Facebook, no way out exists for Netflix. That said, if you just cannot leave NFLX alone (and I would, for the time being), take a flyer on a deep out-of-the-money March 2012 or January 2013 put. If you have profits, it will not kill you. As for me, I will not be playing it until Q3 and Q4 earnings. In particular, I think Netflix CEO Reed Hastings will have to admit that he made the biggest mistake of his career when he predicted a $1 billion Q4 on his company's recent Q2 report.
Disclosure: I am short RIMM.