BlackBerry Ltd (BBRY) Calls Hot After Smartphone Comments

BlackBerry Ltd (BBRY) will release a new keyboard-featured smartphone within the next six months, and option players are buying calls on the stock

Oct 6, 2016 at 12:23 PM
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After last week's announcement that BlackBerry Ltd (NASDAQ:BBRY) will stop developing its own smartphones, a top sales executive yesterday told the BBC that the company will be releasing a new keyboard-featured smartphone within the next six months. So far today, BBRY stock is reacting favorably to this news, and call players are making their move.

Today, the stock is up 3.1% at $7.90. BBRY has managed to tack on over 15% since flirting with multi-year lows a year ago, but for most of 2016, BBRY shares have been fairly range-bound, finding support in the $6.50-$7 region, and resistance in the $8-$8.50 area. Meanwhile, the equity's early 2016 run higher stalled in the formerly supportive $9-$9.50 neighborhood.

161006BBRY

Today, BBRY calls are trading at 1.3 times their average intraday volume, and currently outnumber puts more than four-to-one. The front-month October 8 call is today's most active BBRY option, with buy-to-open activity detected, including one sweep of 1,000 contracts at $0.13 a piece. This means the trader is betting on a rise above the $8 level by expiration on Oct. 21, with breakeven at $8.13 (strike plus premium paid). If BBRY misses its mark, however, the most this option player has to lose is the $13,000 initial premium paid (1,000 contracts * 100 shares per contract * $0.13 premium paid). The October 8 call is already the leading front-month open interest position, and could act as an added layer of options-related resistance in the near term.

From a broader sentiment perspective, BBRY's options pits have been growing more bearish as of late, although calls still dominate. BBRY's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.33 is in the 81st percentile of its annual range. However, BBRY's Schaeffer's put/call open interest ratio (SOIR) of 0.28 is in just the 21st percentile of its annual range, indicating that although the appetite for puts has been growing, the overall sentiment among near-term traders remains more call-skewed than usual. In fact, of BBRY's current top 10 open interest positions, 80% are calls, and put open interest is in the bottom 4% of its annual range.

However, some of those calls -- particularly at out-of-the-money strikes -- may have been bought by  short sellers seeking an options hedge. BBRY's short interest advanced 5.9% during the past two reporting periods, to now account for 11% of the stock's float -- which would take nearly four weeks of trading to cover, at BBRY's average daily volume.

Whatever their reasons, now seems like a good time to buy BlackBerry Ltd (NASDAQ:BBRY) near-term options. BBRY's Schaeffer's Volatility Index (SVI) of 30% is lower than 96% of all other readings, indicating short-term option players are pricing in relatively minimal volatility expectations.

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