Self-Driving Switch Boosts BlackBerry Ltd (BBRY) Ahead of Earnings

BlackBerry Ltd (BBRY) calls have been hot ahead of tomorrow's earnings event

Dec 19, 2016 at 11:32 AM
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BlackBerry Ltd (NASDAQ:BBRY) is getting ready to report earnings tomorrow morning, but today, the stock is climbing on news the company is breaking into the self-driving car market. Specifically, the firm announced it is opening a research center for connected and autonomous vehicles, marking a departure from its specialization in mobile phones. As a result, BBRY stock is trading 3.3% higher at $7.83 -- a move options traders have apparently been anticipating.

Call buying has been popular in recent weeks, with speculators having purchased more than nine BBRY calls for each put over the last 10 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Plus, the resultant call/put volume ratio of 9.06 sits near the top quartile of all readings taken in the past year.

Drilling down, the weekly 12/23 and 12/30 8-strike calls are among the options that have seen the largest rise in open interest over this two-week time frame. And data from the major exchanges confirms that a large number of these calls were bought to open, indicating the traders have been betting on a rally beyond the $8 level after earnings. However, it's possible some of these call buyers have been short sellers looking for a hedge against a surprise upside move.

On an absolute basis, short interest on BBRY has been declining for more than three years, dropping by nearly 12% during the most recent two-week reporting period alone. Still, the 54.7 million shares sold short represent 10.5% of the equity's available float. What's more, it would take over two weeks for these bears to cover their remaining positions, based on the stock's average daily volume.

Elsewhere, the brokerage bunch has not been particularly kind to BBRY of late. Heading into tomorrow morning's earnings report, there are 12 "hold" or worse ratings levied against the stock, compared to just three "buy" or better recommendations. Plus, the average 12-month price target sits at $7.74, a discount to current levels.

Based on BBRY's history, tomorrow's post-earnings price action could easily go either way. In fact, the stock has moved higher in the session subsequent to reporting exactly four out of the last eight quarters. Today, options are pricing in an 11.1% swing in either direction for Tuesday -- notably wider than the single-session post-earnings move of 5.2% the stock has averaged over the last two years.

Technically speaking, BlackBerry Ltd (NASDAQ:BBRY) is sitting on a 15.7% year-to-date loss, and continues to stare up at the historically significant $8-$8.50 region, after plummeting below here in early January. Today's upside move has the equity closing in on the lower end of this region, though, which has served as both support and resistance in recent years.

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