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Option traders descended on Research In Motion Ltd (NASDAQ:BBRY - 14.46) in droves Monday following news that wireless carrier AT&T Inc. (NYSE:T - 36.60) would be selling BBRY's most recent device, the Z10. And today, the CEO of Chinese PC maker Lenovo indicated interest in buying the maker of the BlackBerry device. Overall Monday, BBRY saw more than two times the normal options volume, with nearly twice as many calls crossing the tape as usual, and nearly 2.5 times the number of puts. Two of the most popular tickers were the March 14 put and the March 14 call.
First, the put. Volume nearly doubled open interest for this strike, implied volatility was up 13.1 percentage points on Monday, and open interest spiked overnight, indicating that at least some of the nearly 31,600 contracts were bought to create new positions. The volume-weighted average price (VWAP) was $0.50, meaning that the trades will be profitable every tick BBRY falls below $13.50 (strike minus VWAP) by Friday's expiration date. If the stock is trading north of the strike at expiration, all the investors lose is the premium paid.
As for the 14-strike call, implied volatility climbed 10.9 percentage points on Monday, and a good portion of the 28,140 contracts traded at the ask price, indicating that at least some of these trades were on the opening side. With a VWAP of $0.65, BBRY needs to finish above $14.65 (strike plus VWAP) on Friday to put these trades in the black.
It's been quite the roller-coaster ride for the mobile device maker on the charts recently, with the stock ranging from a high of $18.32 (an annual high) to lows of $12.15 in the course of just a few weeks. Overall, BBRY is up 21.6% year to date, and more than 10% year over year. And the stock has rallied significantly since hitting its annual low of $6.22 on Sept. 24.
In the wake of this volatility, short interest continues to grow, up nearly 5.5% during the last reporting period. Currently, more than 28% of the stock's float has been sold short, laying the groundwork for short-covering activity, should the stock continue its advance.