Profiting from RIM's (RIMM) Ultimate Epic Fail

For the first time in years, investors in Research in Motion (NASDAQ: RIMM) have a smile on their face - the stock is up 57 percent from the bottom; BB10 is testing well and carriers are pushing for its success as the 3rd smartphone ecosystem; takeover speculation is abound; and just yesterday the biggest bear on the Street flipped to a Neutral rating.

While things are looking up and investor sentiment has clearly turned, nothing has been won and there are many pitfalls ahead, analysts warn.

MKM's Michael Genovese for one thinks the real test for the company will come in 4QFY13 and 1QFY14, after the BlackBerry 10 has been launched, as the long-term viability of RIMM is dependent on its success. As StreetInsider.com put it, "BB10 could be big, and cement RIM as the #3 smartphone player behind Android and Apple's ioS. However, investors also need to realize this is the company's last chance. If they fail it will likely spell the demise of the company."

While carriers appear to like BB10 and have interest in a third competitor to counterbalance the Apple and Android platforms, Genovese thinks this will be overshadowed by a lack of consumer demand, with most high-end users having moved on from BlackBerry products.

Despite upcoming catalysts of Q3 earnings expected in late December and the BB10 "launch event" scheduled for late January, the analyst thinks the stock is more likely to trade back toward or through its intrinsic value, which he pegs at $9, based on a sum-of-the-parts valuation.

To position for this potential outcome and also capture the planned late January announcement of the BB10 launch, the derivatives team at MKM recommends buying June 10/7 1x2 ratio put spreads financed by the sale of 15 strike calls for even. In the size illustrated, the structure makes a maximum of $750,000 at expiration with stock at 7 and importantly has wide upper and lower breakevens of 4 and 15 and a small positive theta so the position is virtually costless (ex-margin) to carry.

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