BlackBerry Stock Rally Has Sparked Crazy Options Volume

BlackBerry (BBRY) call volume hit a new high earlier this week

May 24, 2017 at 12:38 PM
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The shares of smartphone and software maker BlackBerry Ltd (NASDAQ:BBRY) have been on a major tear lately, rallying more than 50% in just the past three months. BBRY stock notched a two-year high of $11.39 just yesterday, with analysts attributing the gains to optimism about BlackBerry's future in the cybersecurity and automotive markets. What's more, options traders -- particularly those bullish on BlackBerry -- are more riled up than ever, with BBRY calls flying off the shelves in recent weeks.

Options Volume Hits New High as BBRY Stock Rallies

BBRY call volume topped 110,000 contracts on Monday -- the highest point in at least two years. Total options volume also hit a new high, with more than 132,000 BBRY options traded that day, and the stock's 30-day at-the-money implied volatility peaked at 59.4%. BlackBerry put volume, on the other hand, peaked at a relatively paltry 24,500 contracts just last week, on May 16 -- just a couple of weeks after touching an annual low of 146 puts on May 2.

BlackBerry stock BBRY options volume
Chart courtesy of Trade-Alert


Are BBRY Shorts Buying Long-Term Calls?

During the past week, the January 2018 7-strike call was the most active, though open interest declined at the strike, suggesting many traders took profits and sold to close their in-the-money calls. The most added BlackBerry options were also in the January 2018 series, led by the 16-strike call, with roughly 10,400 new contracts. The January 2018 13- and 15-strike calls took the silver and bronze, respectively, with about 8,800 and 8,200 contracts added in the last week. It's difficult to tell whether the contracts were bought or sold to open, but assuming they were purchased by "vanilla" option bulls, the traders are expecting BBRY stock to extend its rally over the next several months.

However, it's entirely possible that the long-term calls were purchased by short sellers feeling the heat. Short interest on BlackBerry declined by nearly 23% in the most recent reporting period, but still accounts for a healthy 9% of the stock's total available float. At BBRY stock's average daily trading volume, it would take nearly six sessions to repurchase these pessimistic positions. Against this backdrop, shorts could be buying out-of-the-money calls as options insurance.

Short Squeeze, Upgrades Could Push BBRY Stock Higher

As alluded to earlier, BBRY shares have been unstoppable lately, soaring more than 66% since hitting $6.66 in March. The stock today was last seen 2.2% lower at $11.06, though that's not too surprising, considering BlackBerry's 14-day Relative Strength Index (RSI) sits well into overbought territory, at 85. From an Expectational Analysis® standpoint, BBRY could have more gas in the tank; a short squeeze or a flood of well-deserved upgrades could propel the shares even higher. Currently, BBRY boasts just three "buy" or better ratings, compared to nine "hold" or "sell" recommendations.

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