Stocks quoted in this article:
Option Brief: BlackBerry Ltd (NASDAQ:BBRY) is 2.3% higher at $8.15, bringing its week-to-date gain to 12%. What's more, the stock's 10-day and 20-day moving averages just made a bullish cross, signaling more short-term upside could be in store. Against this backdrop, options traders are either betting on or hedging against an extended rally for BBRY over the next few weeks.
Intraday call volume is running at twice the normal rate, with roughly 25,000 contracts exchanged. For comparison, fewer than 5,300 BBRY puts have traded thus far. Speculators are taking a shine to short-term contracts, as the stock's 30-day at-the-money implied volatility (IV) is 2.3% higher at 45.8%.
While some traders may be cashing in their chips by selling to close the weekly 5/2 8-strike calls -- which expire in just a few hours -- others are honing in on the June series of options. Specifically, the June 9 and 12 calls have seen roughly 3,700 and 2,400 contracts cross the tape, primarily at the ask price, suggesting they were bought. Plus, IV ticked higher with the largest transactions at both strikes, hinting at fresh initiations.
The volume-weighted average price (VWAP) of the 9-strike calls is $0.36, meaning the buyers will reap a reward if BBRY is sitting north of breakeven at $9.36 (strike plus VWAP) when back-month options expire at the close on Friday, June 20. Delta on the calls is 0.35, suggesting a better than 1-in-3 shot of an in-the-money finish at expiration.
The deep out-of-the-money (OOTM) 12-strike calls crossed at a VWAP of just $0.04, making breakeven at expiration $12.04. Seeing as it would take a rally of nearly 50% from BBRY's current price in order for the contracts to move into the money, delta on the calls stands at just 0.06.
However, it's worth noting that short interest represents more than 21% of the stock's total available float. In fact, it would take more than seven sessions to buy back all of these bearish bets, at BBRY's average pace of trading. As such, it's possible that the OOTM calls were purchased by short sellers looking to hedge their pessimistic positions against continued gains in the short term.
Regardless of motive, the most the buyers are risking is the initial premium paid for the calls, which they'll forfeit if BlackBerry Ltd (NASDAQ:BBRY) remains south of the strikes through the options' lifetime. Should the shares perforate the strikes, the long calls will limit losses for the aforementioned short sellers, but the unhedged bears could scramble for the exits -- and subsequently lift BBRY even higher on the charts.