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Option Brief: BlackBerry Ltd (NASDAQ:BBRY) defied broad-market headwinds on Thursday, adding 4.4% to end atop the $8 level for just the second time since early April. Against this backdrop, it appears some option traders cashed in their chips by selling to close June 8 calls, while others initiated fresh bullish bets ahead of next week's earnings release.
Echoing the recent trend, BBRY calls were in vogue yesterday. The stock saw roughly 38,000 calls cross the tape -- an 82% mark-up to the average daily volume, and more than four times the number of BBRY puts exchanged.
The June 8.50 call saw more than 4,100 contracts change hands, primarily on the ask side, suggesting they were bought. Plus, open interest rocketed higher by nearly 3,800 contracts overnight, indicating new positions.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.20, the buyers stand to profit if BBRY is perched atop $8.70 (strike plus VWAP) at next Friday's close, when front-month options expire. In fact, profit potential is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid, should BBRY fail to conquer the strike. However, with nearly 20% of the stock's float sold short, it's possible the calls were bought as pre-earnings hedges.
Whatever the motive, with short-term contracts in demand ahead of earnings, option premiums are naturally growing more expensive. The stock's 30-day at-the-money implied volatility jumped 1.9% to 55.1% yesterday, and its Schaeffer's Volatility Index (SVI) of 75% stands higher than 61% of all other readings from the past year. In other words, BBRY's front-month options are fetching pricier premiums than usual, from a historical standpoint.
In early action, BBRY is fractionally lower, but remains 8.9% higher year-to-date. Off the charts, the company just signed a three-year deal with EnStream LP, in an attempt to expand its footprint in the mobile payment world, and will unveil its fiscal first-quarter earnings before the open next Thursday, June 19. Last quarter, BlackBerry Ltd (NASDAQ:BBRY) reported a smaller-than-expected bottom-line loss, but the shares surrendered 9.2% over the five subsequent sessions.