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BlackBerry Ltd (NASDAQ:BBRY) speculators are showing a preference for calls over puts today, as roughly 36,000 of the former have changed hands thus far, compared to about 15,000 of the latter. However, a closer look at the data shows that one trader utilized both types of contracts in a nontraditional sense to initiate a neutral spread strategy on the mobile phone maker. Interestingly, the stock's 30-day, at-the-money implied volatility spiked to 86.0% as of yesterday's close, compared to a reading of 58.3% on Aug. 22 -- which is likely due to the recent buyout buzz.
Going back to today's activity in BBRY's options pits, two matching blocks of 5,000 contracts crossed simultaneously at the weekly 9/13 11-strike call and put -- the former for a bid price of $0.40 each, and the latter for a bid price of $0.47 apiece. These transactions, which resulted in a net credit of $0.87 per pair of contracts, were marked as "opening," per data from Trade-Alert.
By constructing what appears to be a short straddle on BBRY, the strategist is betting on the stock to close at $11 by next Friday's close, when these weekly options expire. The seller may be anticipating sideways movement in the shares in advance of any buyout announcement. A close right at $11 would render both of the options worthless, and allow him to pocket the net credit received, which also represents the maximum profit on the play. Between the breakeven prices of $11.87 and $10.13 (the strike price plus and less the net credit, respectively), the straddle seller will be profitable. If the stock ascends past the upper breakeven rail, the trader's risk is theoretically unlimited. If the shares move south of $11, his losses are capped at $10.13, or the strike price less the net credit received.
Technically speaking, BlackBerry Ltd (NASDAQ:BBRY) has advanced more than 62% year-over-year, and has bested the broader S&P 500 Index (SPX) by over 19 percentage points during the past two months. At last check, however, the stock was down 0.8% to hover at $10.91.
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