BlackBerry (BBRY) will enter the earnings confessional ahead of the open on Friday, and BBRY stock is facing some pretty bearish investor sentiment heading into the event.
Currently, Wall Street is expecting BlackBerry to post a loss of 15 cents per share in the third quarter, down from a profit of a penny per share in the same quarter last year. Revenue is expected to fall 38.5% to $487.92 million.
The past year has been rocky for BlackBerry: The company has missed the consensus estimate twice and topped expectations twice in the past four reporting periods. That said, EarningsWhisper.com reports a loss of 13 cents per share for the current quarter, slighly better than the consensus.
Still, the brokerage community remains extremely pessimistic when it comes to BlackBerry stock’s prospects. Thomson First Call reports data reveals that 26 of the 29 analysts following BBRY stock rate it a “hold” or worse. What’s more, the current 12-month price target of $7 per share represents a 12% discount to the stock’s current perch near $7.85.
Elsewhere, short sellers are also betting big against BlackBerry stock. In fact, the number of BBRY shares sold short rose by 6% to 78.7 million shares during the most recent reporting period. As a result, 15% of the stock’s total float (shares available for public trading) are now sold short.
Click to Enlarge The short sellers appear to be a bit nervous heading into Friday’s report. Currently, the December put-call open interest ratio arrives at a bullish reading of 0.53, with calls nearly doubling puts among options set to expire by the end of this week.
With call OI at high levels, it may be evidence that short sellers are hedging their bets against a potential earnings-induced rally.
Overall, December implieds are pricing in a potential post-earnings move of about 8% for BBRY stock. This places the upper bound near $8.86, while the lower bound lies at $7.14.
A move in either direction would represent a significant breakout for BBRY, with a rally pushing the shares north of $8.50 and their 200-day moving average, and a selloff putting BBRY below its 50-day trendline and near a breach of support at $7.
2 Trades for BBRY Stock
Put Spread: BlackBerry stock has shown signs of life recently, but the shares have been unable to overcome staunch overhead resistance. Furthermore, there appears to be little coming in Friday’s quarterly report to suggest that the situation is going to change anytime soon.
As such, traders looking to jump on the bearish bandwagon might want to consider a weekly Dec 24 series $7/$8 bear put spread. At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $7.65, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if BBRY closes at or below $7 when weekly Dec. 24 options expire.
Straddle: On the other hand, traders with a higher risk tolerance might want to take advantage of this high volatility situation and enter a straddle. A straddle involves the simultaneous purchase of an at-the-money call and an at-the-money put in an attempt to take advantage of a greater-than-expected move from the underlying stock.
By employing a straddle on BBRY stock, you are betting that the company is either going to handily beat earnings expectations or miss the Street’s targets.
At last check, the Dec $8 straddle was offered at 86 cents, or $86 per pair of contracts. Breakeven for this trade lies at $8.86 on the upside and at $7.14 on the downside.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
