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BlackBerry Ltd (BBRY) Beckons Pre-Earnings Bears to the Option Pits

BBRY's poor price action attracts near-term put players

by 9/20/2013 2:03 PM
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BlackBerry Ltd (NASDAQ:BBRY) is off 3% this afternoon to trade at $10.20, following reports that the struggling firm's second-quarter earnings report -- due next Friday, before the open -- may include a sizable writedown on its unsold smartphones. This comes just days after BBRY announced plans to lay off up to 40% of its workforce. Meanwhile, bearish bettors are flocking toward the stock, with roughly 29,000 puts crossing the tape so far -- a 71% mark-up over the norm.

One of the most active strikes is the October 9 put, which has seen about 2,900 contracts change hands at a volume-weighted average price (VWAP) of $0.36. The vast majority of these puts traded at the ask price, and implied volatility has climbed 3.3 percentage points since the opening bell -- implying the initiation of new long positions.

Provided these soon-to-be front-month puts were, in fact, bought to open, the traders are expecting BBRY to retreat below breakeven at $8.64 (strike price less the VWAP) by October expiration. This denotes a discount of 15.3% to the stock's current price. The delta for this option sits at negative 0.24, suggesting it has a less than 1-in-4 chance of moving into the money ahead of the close on Oct. 18.

BlackBerry Ltd (NASDAQ:BBRY) has been a technical laggard in 2013, shedding more than 14% year-to-date, and trailing the broader S&P 500 Index (SPX) by north of 34 percentage points during the past three months. Although the shares have yet to recover from an earnings-induced bearish gap in late June, they recently found a foothold in the $10 area amid recent buyout buzz. Against this backdrop, it is a faint possibility that some of the put buyers are shareholders in disguise, scooping up options insurance ahead of the looming earnings report.

As previously noted, the mobile phone maker is due to report quarterly earnings on Friday, Sept. 27, and has bested consensus estimates in four of the past seven quarters. For the fiscal second quarter, analysts are expecting a loss of 21 cents per share. Should BBRY maintain its perch atop $9 through October expiration, today's put buyers will be forced to part with the initial premium paid.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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