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Bullish Attention Builds on BlackBerry Ltd (BBRY) Ahead of Earnings

BlackBerry Ltd call buying nears fever pitch

by 5/20/2014 9:53 AM
Stocks quoted in this article:

Calls have been growing in popularity on BlackBerry Ltd (NASDAQ:BBRY) in recent weeks, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the past two weeks, the equity's 10-day call/put volume ratio on these three major exchanges has grown to 5.83 from 3.95. What's more, the current ratio ranks in the 98th percentile of its annual range, meaning calls have been bought to open over puts at a faster clip just 2% of the time within the past year.

This trend continued on Monday, when nearly six calls were exchanged for each put. Traders displayed a penchant for short-term options, per the stock's 30-day at-the-money implied volatility (IV), which jumped 12.4% by the close to land at 48.4%. BBRY's weekly 6/13 7.50-strike call saw the most action, and of the 4,256 contracts traded here, 76% crossed on the ask side, pointing to buyer-driven activity. Plus, IV edged higher, and open interest rose the most of any strike overnight, making it safe to assume that new bullish positions were initiated.

The options market is giving the call a roughly 2-in-5 chance of being in the money when the option expires at the close on Friday, June 13, per its delta of 0.39. From its current perch at $7.24, BBRY needs to rise more than 3.6% to topple the strike price. On a move higher, profits on the purchased call are theoretically unlimited. Should the stock finish below the strike price at expiration, however, the most the speculators stand to lose is the initial premium paid.

At present, BBRY's Schaeffer's Volatility Index (SVI) of 52% ranks lower than 73% of similar readings taken in the past year, suggesting premium on the stock's short-term options is inexpensive at the moment, historically speaking. Additionally, the security's Schaeffer's Volatility Scorecard (SVS) of 97 implies the equity tends to make outsized moves, relative to what the options market has priced in.

Looking ahead, BlackBerry Ltd (NASDAQ:BBRY) is scheduled to report quarterly earnings before the June 19 open. Although this scheduled event resides outside the lifetime of the aforementioned calls, it is worth noting that over the past five quarters, BBRY has averaged a loss of 3.8% and 5.3% in the subsequent day and week after reporting. For BBRY's fiscal first quarter, analysts are calling for a per-share loss of 25 cents.


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