Options Traders Target BlackBerry Puts as Stock Ticks Higher

BlackBerry Ltd (BBRY) options traders have been buying puts at extreme rates in recent weeks

Feb 6, 2017 at 2:52 PM
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Tech stock BlackBerry Ltd (NASDAQ:BBRY) has reportedly signed a long-term hardware licensing deal with Optiemus Infracom Ltd, covering India and three nearby countries, as the firm shifts its focus to software development. The news has BBRY stock up 0.4% at $7.03, but options traders seem to be taking a glass-half-empty approach.

BBRY puts are trading at triple the expected rate for this point in the session, with more than 8,700 traded so far, compared to roughly 2,000 calls. In fact, the intraday put/call volume ratio of 4.35 represents a 52-week high. Today's hefty volume is particularly notable, given that BBRY's total options open interest currently resides in the low 2nd percentile of its annual range.

Accounting for a significant portion of today's action are the June 7 and 8 puts, where data from Trade-Alert indicates a trader initiated a long put spread with 3,600 contracts at each strike. If this is indeed the case, the speculator is betting on BBRY to remain below the $8 mark through Friday, June 16, when the options expire.

Taking a step back, put buying has reached extreme levels among BBRY options traders in recent weeks. The equity's 10-day put/call volume ratio of 0.97 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than all other readings from the past 12 months. However, calls continue to lead on an absolute basis, particularly among near-term traders. For instance, BBRY's front-month, gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.12 indicates call open interest outweighs put open interest by more than 8-to-1 among near-the-money options in the February series.

In any case, BBRY continues to present an attractive options buying opportunity. The stock currently holds a Schaeffer's Volatility Index (SVI) of 30% -- lower than 93% of the past year's readings. Put simply, BBRY's short-term options are pricing in historically low volatility expectations.

Outside of the options pits, it's clear pessimism toward BBRY is the norm. The nearly 10% of the security's total float sold short would take three weeks to cover, based on the stock's typical pace of trading. And 10 out of 12 tracking brokerage firms rate the it a "hold" or worse.

It's hard to argue too much with that assessment, given BlackBerry Ltd's (NASDAQ:BBRY) choppy price action over the past year. The shares are seated just above their year-over-year breakeven level, while the $7 mark has served as both support and resistance since late 2015. Plus, BBRY was recently rejected by the 50-week moving average.

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