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The shares of Research In Motion Ltd (NASDAQ:BBRY - 15.65) soared in the final hour of trading yesterday, sparking a flood of profit-taking and attracting a fresh crop of option bulls. By the time the dust settled, the BlackBerry maker saw roughly 181,000 calls cross the tape -- a 79% mark-up to its average daily call volume. For comparison, around 107,000 BBRY puts were exchanged.
Attracting notable attention were the now in-the-money March 14 and 15 calls, which saw around 21,000 and 27,000 contracts change hands, respectively. Most of the 14-strike calls crossed on the bid side, and open interest plummeted overnight, pointing to sell-to-close activity. Or, in simpler terms, the call holders cashed in their chips in the wake of BBRY's rally. Meanwhile, the bulk of the 15-strike calls traded on the ask side, and open interest edged higher overnight, hinting at newly bought bullish bets.
Digging even deeper, the 15-strike calls crossed at a volume-weighted average price (VWAP) of $0.36, meaning the buyers will profit with each step north of $15.36 (strike price plus VWAP). Delta for the calls stands at 0.74, indicating that for every one-point increase BBRY notches, the calls will gain $0.74 in value. However, should BBRY retreat beneath the strike by tomorrow's close, when March-dated options expire, the most the buyers can lose is the initial premium paid for the calls
As alluded to earlier, the shares of BBRY shot higher in afternoon trading, amid news of an order for a million BlackBerry 10 smartphones from an undisclosed partner. Ahead of the bell, the stock is poised to add to that lead, up 1.8%.
Of course, an extended rally could shake loose some of the lingering skeptics on Wall Street. Despite its year-to-date advance of more than 31%, BBRY boasts just four "buy" or better ratings from analysts, compared to 12 "holds" and 14 "sell" or worse suggestions. In the same vein, the consensus 12-month price target rests at a measly $11.20, representing a discount to BBRY's current share price. A round of upgrades and/or price-target hikes could add contrarian fuel to the fire.
Likewise, short interest jumped 13.7% during the past two reporting periods. These bearish bets now account for more than 30% of BBRY's total available float. A short-squeeze situation could also translate into a contrarian boon for the security.