How to Recoup Rambus Losses Using LEAPS

Rambus Inc. [[RMBS]] shares plummeted today after the technology firm received an unfavorable ruling in a case against Micron Technology (MU). U.S. District Judge Sue Robinson ruled that 12 of Rambus’ patents are now unenforceable against Micron after a lengthy battle. The technology firm is no stranger to such patent lawsuits as it licenses its technology to companies for royalty fees. So, what does this ruling mean and how can investors recover their losses?

Rambus is well known among chip manufacturers for engaging in court battles over its intellectual property and its stock price tends to rise and fall on the ruling of these cases. For example, shares soared two months ago after the firm received a positive pre-trial ruling in California against Hynix Semiconductor, Samsung Electronics, Nanya Technology and Micron, who allegedly infringed upon certain aspects of Rambus’ patents. Shares may have fallen as a result of today’s ruling, but if history is any guide, the stock may recover on future litigation on the bullish side of things.

Investors confident in an eventual recovery in Rambus shares may want to consider instituting a stock repair strategy using long-term options called LEAPS. The strategy involves building an options position around an existing stock position in order to lower the breakeven point without committing any additional capital. This is done by purchasing one long call while simultaneously writing two calls for every 100 shares owned. The premiums collected then offset the cost of the call while the 100 shares covers the second written call and the long call’s upside decreases the breakeven point.

See “Recouping Losses with the Repair Strategy” for more information on how to implement this strategy and check out our Tools & Products for more ways to profit from LEAPS.