Call Buyers Blast BlackBerry Stock Ahead of Earnings

Another positive earnings reaction for BlackBerry shares could spark a flood of analyst upgrades

Jun 21, 2017 at 2:38 PM
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BlackBerry Ltd (NASDAQ:BBRY) has a history of making volatile post-earnings moves, with the shares jumping 11.5% in March and 5.7% last September in the session subsequent to reporting. Over the last eight quarters, BBRY stock has averaged a single-session post-earnings move of 6.7%, regardless of direction. This time around, the options market is pricing in a bigger 12.7% single-session swing, after the smartphone maker reports earnings Friday morning.

From the looks of it, options traders are expecting this post-earnings price action to resolve to the upside. In the last 10 trading sessions, speculative players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 28,998 calls on BlackBerry stock, compared to 7,108 puts.

One of the more active strikes over this two-week time frame was BBRY's July 12 call, where 11,075 contracts traded. This call is now home to the stock's top front-month open interest position of 9,690 contracts outstanding, with data from the major options exchanges confirming mostly buy-to-open activity here. In other words, options traders expect BBRY shares to settle north of $12 at the close on Friday, July 21, when the options expire.

With earnings on the immediate radar, elevated volatility expectations are being priced into BlackBerry's short-term options, making premium more expensive. In fact, the stock's Schaeffer's Volatility Index (SVI) of 51% ranks in the 89th annual percentile, while its 30-day at-the-money implied volatility of 54.2% sits just 3 percentage points from a 52-week peak.

Looking at the charts, BlackBerry shares have been on a tear since bottoming at a year-to-date low of $6.65 in early March, up 59%. More recently, the security pulled back after notching a two-year high of $11.74 on June 1, but may find a foothold atop its 30-day moving average.

Should BBRY stock break out after another positive earnings reaction, there's plenty of room for analyst upgrades and/or a round of short-covering to help fuel the fire. Of the 12 brokerages covering BlackBerry, 10 maintain a "hold" or "sell" rating. Plus, short interest jumped 6.9% in the most recent reporting period to 48.3 million shares, or 4.1 times the security's average daily pace of trading.

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