Options Plays To Profit From Smartphone Losers ? ~ BUSINESS

Smartphone-exposed equities have garnered quite a bit of attention this week, largely thanks to Nokia Corp.’s

(NOK)recently slashed sales guidance. The firm attributed much of the warning to the growing success of Google’s (GOOG) Android across the pond, as the operating system ran 34% of smartphones in Western Europe in the first quarter, compared to only 8% a year prior.

What’s more, the discouraging outlook may be ominous for some of NOK’s sector peers — though not all of the smartphone industry is shaking in their boots. Against this backdrop, let’s take a closer look at three potential contrarian plays: Research In Motion Limited (RIMM – 40.52), Motorola Mobility Holdings Inc. (MMI – 24.28), and Broadcom Corporation (BRCM – 35.03).

Research In Motion Limited (RIMM)

BlackBerry maker RIMM was probably most sympathetic to NOK’s fundamental woes, with the shares retreating to a two-year low on Wednesday. As a result, the stock is down more than 30% in 2011, with the most recent leg of its downtrend highlighted by resistance at its 10-day and 20-day moving averages. Now, the equity is struggling to maintain a foothold atop the round-number $40 region, which has been compromised on a monthly closing basis just once since October 2006.

In light of the security’s struggles both on and off the charts, the bulls among the brokerage bunch are starting to hit the exits. However, there’s still plenty of room on RIMM’s bearish bandwagon, with 16 analysts maintaining “buy” or better ratings, according to Zacks. Likewise, Thomson Reuters pegs the consensus 12-month price target on the security at $57.30 — implying expected upside of 48.7% from RIMM’s new low of $38.53 tagged Friday, and in territory not charted since March. As the remaining optimists capitulate to the skeptical camp, a flood of downgrades and/or price-target cuts could exacerbate the stock’s slide.

To bet on an extended retreat for RIMM, traders may want to consider the stock’s July 50 put. However, keep in mind that the company has a date in the earnings confessional on Thursday, June 16 . To limit risk in the event of an unexpected post-earnings pop, investors could pair the bought 50-strike put with a sold July 42.50 put, resulting in a bear put spread.

Motorola Mobility Holdings (MMI)

Unlike NOK, MMI stands to benefit from Android’s growing presence in Europe, with the company one of many firms to launch new Android-based handsets in the region in recent months. In fact, the company’s CEO recently said the firm will have a strong presence in Europe this year, especially in the fourth quarter. In addition, the executive said MMI is better-positioned than many other Android players, and is even considering acquisitions to generate product differentiation.

Technically speaking, though, MMI hasn’t been much to write home about, with the security shedding about 15% of its value in 2011. More recently, the stock has bounced along between support in the $23.50 region and resistance in the $26.50 area — a trading range that hasn’t been violated on a weekly closing basis since early March.

Nevertheless, the shares of MMI could benefit from an unwinding of pessimism on the Street. According to Zacks, only half of the 24 analysts following the equity consider it worthy of a “buy” or better rating. Meanwhile, short interest jumped nearly 9.1% during the most recent reporting period, and now represents almost eight sessions’ worth of pent-up buying demand, at MMI’s average pace of trading.

Should MMI flex some fundamental muscle, a wave of upgrades or a significant short-squeeze situation could help the stock break north of its trading window. To bet on a contrarian rally for the equity, traders may want to consider MMI’s July 20 call. On the other hand, speculators expecting an extended period of stagnation may want to think about initiating a short strangle by selling both the June 23 put and June 28 call.

Broadcom Corp. (BRCM)

BRCM, like RIMM, has suffered on the charts due to heightened concerns about its exposure to NOK. For the week, the equity surrendered roughly 5.7%, compared to the 2.3% loss of the S&P 500 Index (SPX). From a longer-term perspective, the security has backpedaled more than 19% since the start of the year, with nearly all of its rebound attempts halted by its descending 10-week moving average.

Regardless of its year-to-date tailspin, BRCM still has quite a few analysts in its corner. According to Zacks, the stock boasts 18 “strong buys” and five “buy” recommendations, compared to just nine “hold” or worse suggestions. Plus, Thomson Reuters pegs the average 12-month price target on the shares at $45.29, representing a premium of about 31% to BRCM’s closing price of $34.45 on Friday.

In similar fashion, the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 0.60 indicates that calls comfortably outnumber puts among options slated to expire within three months. More importantly, perhaps, this ratio stands just three percentage points shy of a 52-week low, suggesting near-term options players have rarely been more call-heavy on BRCM during the past year.

Traders looking to capitalize on a continued downtrend by BRCM may want to consider the stock’s July 41 put

source: forbes.com