I'm holding some out-of-the-money call options for January 2014. It is basically a bet that a successful BB10 launch will result in the stock price going up very substantially by 2014 (the $40/share, $4 EPS scenario laid out by people such as Misek, Papageorgiou, Eric Jackson, etc...).
Originally Posted by s0be
Currently you can get around nine Jan 2014 call options with $20 strike price for the same amount as 100 shares. If the price does make it up to $40, then the options would be worth $18k vs $4k if you purchased the shares themselves. Of course, if the stock is $20 or less when the options expire, then you'd be losing your entire investment.
It's a highly speculative play, so I didn't put too much into it. However, it may be a potential way to approach things if:
1. You're okay with losing most/all of the money that you spend on the call options.
2. You think that BB10 has a reasonable chance of success.
3. You think that success will result in a very large increase in the stock price. If you think that the BB10 launch will result in a $1-$2 EPS in FY14, translating into perhaps a $20 price, then it's probably better to go the stock route.
4. You think that if BB10 is not successful, then the stock price will take a large hit from current levels.
Taking a look at some of the scenarios that Peter Misek (as an example) outlined:
20% chance of $40 in 12 months, 20% chance of $10, 60% chance of $5 (changed from his $0 since I doubt that RIM will be worth $0 in 12 months even if the launch isn't a success) gives us an expected value of $13 vs the current price of $11+.
With the Jan 2014 call options at a $20 strike price, this would mean that the option would have a 20% chance at being worth $20 and an 80% chance of being worth $0. The expected value here is $4 vs. a current price of around $1.25.
So I figured that the risk/reward ratio was worth taking a shot at here with a limited amount of investment, although it really is a situation with an extremely high reward but also a very high risk, given that there is a hypothetical 80% chance of being left with nothing.