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Research In Motion Ltd (BBRY) Call Options Heat Up Ahead of Q10 Debut

BBRY call options are flying off the shelves today

by 6/3/2013 1:32 PM
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The shares of Research In Motion Ltd (NASDAQ:BBRY) are down 3% at $13.53, yet call options are flying off the shelves today. So far, the BlackBerry maker has seen 73,000 calls change hands – a 68% mark-up to its average intraday volume. Upon closer inspection, however, it appears some of the action consists of short-term bearish bets.

Most popular is the June 15 call, which has seen more than 8,600 contracts cross the tape at a volume-weighted average price (VWAP) of $0.22. Eighty-six percent of the calls traded on the ask side, and implied volatility was last seen 7.8 percentage points higher, hinting at newly bought bullish bets.

By purchasing the calls to open, the buyers expect Research In Motion Ltd (NASDAQ:BBRY) to muscle atop $15.22 (strike price plus VWAP) within the next three weeks – which encompasses the company's highly anticipated Q10 launch in the U.S. From current levels, it would take a rally of roughly 12.5% in order for BBRY to hit breakeven. Risk, meanwhile, is capped at the initial premium paid for the calls.

Elsewhere, other options traders are utilizing calls to bet on a short-term ceiling for BBRY. The stock's weekly 6/7 14- and 14.50-strike calls have seen around 6,400 and 5,700 contracts change hands, respectively. The majority of the calls have traded on the bid side, and volume has exceeded open interest at both strikes, pointing to sell-to-open activity.

By writing the calls to open, the sellers expect Research In Motion Ltd to remain beneath the respective strikes through Friday's close. In this best-case scenario, the calls will remain out of the money, and the sellers can pocket the initial net credit.

Expanding our sentiment scope, we find that "vanilla" calls have been gaining in popularity lately. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 2.57 -- in the 86th percentile of its annual range. In other words, traders have bought to open BBRY calls over puts at an accelerated clip during the past two weeks.

Of course, some of that could consist of hedging among the shorts. Short interest grew 3.6% during the most recent reporting period, and now accounts for 35% of BBRY's total available float. In fact, at Research In Motion's average daily trading volume, it would take more than a week to repurchase all of these pessimistic positions.


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