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Why Now Is an Opportune Time to Buy BlackBerry Ltd (BBRY) Options

Premium on BlackBerry Ltd's front-month options is relatively low at the moment

by 7/2/2014 11:10 AM
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BlackBerry Ltd (NASDAQ:BBRY) has rallied 41% since the start of June to trade at $10.70. Not surprisingly, call players have been active in the stock's options pits, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, over the past 50 sessions, the equity has racked up a call/put volume ratio of 4.30, which ranks in the 98th percentile of its annual range. Simply stated, calls have been bought to open over puts at a faster pace just 2% of the time within the past year.

This call-skewed trend is being witnessed today, where calls are trading at a 65% mark-up to the intraday average, and are outpacing puts by a nearly 7-to-1 margin. There appears to be buy-to-open activity occurring at BBRY's July 11 call, where 7,439 contracts have changed hands at a volume-weighted average price (VWAP) of $0.34. As such, at-expiration breakeven for the call buyers is $11.34 (strike plus VWAP). Gains are theoretically unlimited beyond this point, while risk is capped at 100% of the premium paid, should BBRY settle south of $11 at the close on Friday, July 18 -- when front-month options expire.

While this accelerated call buying shouldn't come as a shock in light of BBRY's recent run up the charts, with 20% of the stock's float currently sold short, some of this activity may be at the hands of shorts hedging against any additional upside. Regardless of the reason, now is an opportune time to place bets on BlackBerry Ltd (NASDAQ:BBRY) at a bargain. The stock's Schaeffer's Volatility Index (SVI) of 46% ranks in the low 18th percentile of its annual range, meaning premium on the equity's front-month options is inexpensive at the moment, from a volatility standpoint.


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