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Option Brief: BlackBerry Ltd (NASDAQ:BBRY) calls were in demand yesterday, relative to puts. By the numbers, 16,000 calls crossed the tape, versus fewer than 6,500 puts. In fact, the four most active strikes were calls, which saw a mix of buying and selling activity.
Diving right in, traders targeted the weekly 6/6 8-strike call more than any other BBRY option. All of the 3,020 contracts that were exchanged here -- including several mid-sized blocks -- did so at the ask price. What's more, the majority of the volume translated as open interest overnight. Long story short, it appears these out-of-the-money (OOTM) calls were bought to open.
Consequently, the speculators are looking for BlackBerry shares to rally above $8 by weekly options expiration at the close on Friday, June 6. Based on the call's closing delta of 0.27 yesterday, the options market is giving the contracts about a 1-in-4 chance of expiring in the money. Should the stock fail to gain the 7.5% needed to topple the strike (from its current perch at $7.44), the most the buyers will part with is the initial cash outlay.
Alternatively, it's possible Monday's traders picked up the OOTM calls as a hedge for their short stock positions. After all, 21.2% of BBRY's float is currently sold short, which would take more than two weeks to cover at the equity's average daily trading volume.
Technically speaking, the stock has rallied nearly 37% since hitting a decade-plus low of $5.44 on Dec. 10. If the shares continue to run up the charts, short sellers could be forced to cover their bearish bets, potentially adding more fuel to BlackBerry Ltd's (NASDAQ:BBRY) rebound from support at $7. On the fundamental front, the company announced a new budget smartphone for the Indonesian market this morning.