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Option Brief: One of the top options trades today occurred in BlackBerry Ltd's (NASDAQ:BBRY) pits. About an hour into the session, a block of 11,208 contracts changed hands at the mobile phone maker's January 2015 10-strike call. Around the same time, several other large and mid-sized lots crossed the tape, bringing volume at the strike to 15,071 contracts total.
All of the trades occurred at the ask price, and implied volatility is 2.5 percentage points higher at the strike, suggesting the LEAPS were bought to open. This theory is confirmed by data from Trade-Alert. By initiating the calls, the speculators are gambling on BBRY rallying back above $10 by options expiration in January 2015, roughly 13 months from now. At last check, the shares were hovering near $5.92.
On the charts, BlackBerry has struggled considerably this year, down about 50%. In fact, the stock hasn't traded above $10 on an intraday basis since Sept. 20 -- the same day the company announced a nearly $1 billion second-quarter loss and a 40% workforce reduction. Consequently, the options market is giving the LEAPS just a 1-in-4 chance of expiring in the money, per the call's delta of 0.25.
Due to the high levels of short interest on the stock -- nearly one-third of BlackBerry's float is sold short -- it's possible that some traders have been buying BBRY calls to hedge their bearish positions. However, in this particular trade, it's relatively unlikely that bears would purchase so much time premium for their hedges.
Speaking of quarterly financial losses, BlackBerry Ltd (NASDAQ:BBRY) is scheduled to enter the earnings confessional before the market opens next Friday, Dec. 20. For the third quarter, analysts are expecting the Canadian firm to post a loss of 44 cents per share, or twice the year-ago loss of 22 cents per share.