Stocks quoted in this article:
BlackBerry Ltd (NASDAQ:BBRY) option speculators are once again focusing on short-term positions, and this time are betting on limited movement in the shares throughout the balance of the week. By simultaneously selling at-the-money calls and puts at the same strike, a trader has executed a short straddle in the hopes of seeing relatively limited movement in the underlying.
The straddle seller in question evidently sold to open 5,000-contract blocks of the weekly 8/30 10.50-strike calls and puts. The blocks traded at the respective bid prices of $0.23 per contract and $0.25 per contract, and volume exceeds open interest at both strikes, which is indicative of opening activity. In fact, data from the International Securities Exchange (ISE) confirms that customers are selling both of these short-term contracts to open. BBRY option premiums have gotten a bit richer today for option sellers, as the stock's 30-day, at-the-money implied volatility measure has shot up 10.7 percentage points (or 18.1%) to 69.3%.
The short straddle is a limited-reward, unlimited-risk play. Profits are maximized at the net premium collected ($0.48 per straddle) if BBRY is trading right at the $10.50 level when the options expire at Friday's closing bell. Additionally, the straddle seller will be profitable anywhere between the breakeven prices of $10.02 to the downside or $10.98 to the upside (the strike price, minus and plus the net credit).
South of the lower breakeven, however, losses can be significant, up to $10.02 per straddle. And should BBRY rally above $10.98, losses are potentially unlimited, due to the uncovered short call. Currently perched at $10.46, BBRY is nearly 5% shy of its upper breakeven, and 4.6% away from its lower breakeven rail.
There is little on the near-term calendar to propel a move in BBRY shares, save the release of the BlackBerry Q10 to Sprint Corporation (NYSE:S) stores on Aug. 30. Although the shares have dropped almost 12% in 2013, they remain close to 50% higher on a year-over-year basis. BlackBerry Ltd (NASDAQ:BBRY) has been trading between the $10.02 and $10.98 levels for the past 11 sessions, however, and need only stay in this range through week's end to land today's straddle seller in profitable territory.