The momentum darling, RIMM, gave up over $20 after releasing the Q2 financial results (missed by a penny vs expectation, $0.88 vs 0.89), and lower Q3 bottom line and margin on Thursday after market closed. The management downplayed AAPL eroding its profitability and attributed the disappointment to shrinking margins due to increase SGAN and R&D to expand its market share.
It is quite interesting even RIMM has shined for so long in the last two years and certainly a bright star among analysts and investors, underneath this seemingly unstoppable bull run, there have been gradual but significant build-up of doubts and worries when we examined the derivative markets. After RIMM skyrocketed about five-folds from fall 2006 t0 Oct 2007, and peaked about 133 in Nov 2007, the bearish sentiment began to emerge. We can assess the sentiment by studying the relative positions of the underlying call and put option open interests during the period. The open interests of call option began to slide while the total contract numbers of put option open interest increased after RIMM broke $100, as measured by the ratio total call option open interest to total put option open interest (see the first chart below). The chart indicates that call/put open interest ratio made a significant drop from about 1.2 to barely over 1.00 when RIMM first broke 100 in Q4 2007, and the ratio stayed at the depressed level since then. Even during the latest two RIMM pull backs in July and this week, few investors stepped in measured by the call/put ratio as typically one would expect investors would see it as an opportunity to build positions. It is true the ratio improved somewhat (from about 0.9 to above 1.0). However, the sentiment, at the best, would be regarded as neutral rather than bullish comparing to its historical level. For comparison purpose, when we examined AAPL, a total different picture emerged. As we can see from the second chart, call/put open interest ratio is almost exactly opposite RIMM in the last two years. The bullish momentum has continued to build as AAPL moved up in general trend. Whenever there was pull back in AAPL prices, there were spikes in call/put open interest ratio, such as in summer 07, early 08 and last week. The ratio registered over 1.40 on the 19th, the highest, for every put contracts, there were 1.4 call unmatched contracts. The derivative market seems indicating much strong bullish signal for AAPL.
Even AAPL and RIMM are two favorite momentum players in the last two years among investors, it seems that market conveys much more convictions and belief for AAPL than RIMM, and it seems that RIMM has lost quite bit of its mojo.
Disclosures: Own LEAP AAPL calls
It is quite interesting even RIMM has shined for so long in the last two years and certainly a bright star among analysts and investors, underneath this seemingly unstoppable bull run, there have been gradual but significant build-up of doubts and worries when we examined the derivative markets. After RIMM skyrocketed about five-folds from fall 2006 t0 Oct 2007, and peaked about 133 in Nov 2007, the bearish sentiment began to emerge. We can assess the sentiment by studying the relative positions of the underlying call and put option open interests during the period. The open interests of call option began to slide while the total contract numbers of put option open interest increased after RIMM broke $100, as measured by the ratio total call option open interest to total put option open interest (see the first chart below). The chart indicates that call/put open interest ratio made a significant drop from about 1.2 to barely over 1.00 when RIMM first broke 100 in Q4 2007, and the ratio stayed at the depressed level since then. Even during the latest two RIMM pull backs in July and this week, few investors stepped in measured by the call/put ratio as typically one would expect investors would see it as an opportunity to build positions. It is true the ratio improved somewhat (from about 0.9 to above 1.0). However, the sentiment, at the best, would be regarded as neutral rather than bullish comparing to its historical level. For comparison purpose, when we examined AAPL, a total different picture emerged. As we can see from the second chart, call/put open interest ratio is almost exactly opposite RIMM in the last two years. The bullish momentum has continued to build as AAPL moved up in general trend. Whenever there was pull back in AAPL prices, there were spikes in call/put open interest ratio, such as in summer 07, early 08 and last week. The ratio registered over 1.40 on the 19th, the highest, for every put contracts, there were 1.4 call unmatched contracts. The derivative market seems indicating much strong bullish signal for AAPL.
Even AAPL and RIMM are two favorite momentum players in the last two years among investors, it seems that market conveys much more convictions and belief for AAPL than RIMM, and it seems that RIMM has lost quite bit of its mojo.
Disclosures: Own LEAP AAPL calls