It’s hard to believe that the once ubiquitous BlackBerry handset is a thing of the past. But it’s a reality that BlackBerry Ltd (NASDAQ:BBRY) investors have had to make peace with — along with a 10% year-over-year drop in BBRY stock. The company now focuses almost entirely on brand and software licensing, and this week’s fourth-quarter earnings report will reflect the lower revenue that comes along with such a shift.
Today, we’ll look at a couple of trade ideas heading into the report.
Wall Street isn’t expecting much from BlackBerry when it steps into the earnings confessional ahead of the open this Friday. The consensus is anticipating breakeven results, compared to a loss of 3 cents per share a year ago. Revenue, however, is seen declining 37.8% to $288.45 million.
That said, there are some bright spots that BBRY traders will want to keep an eye out for. First, with the shift away from handset manufacturing and toward licensing, costs will fall sharply.
Additionally, BlackBerry has made a push into the automotive sector, making deals with Audi, General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) to use its QNX operating system. However, there is stiff competition in the automotive sector, especially with rising star Nvidia Corporation (NASDAQ:NVDA) already making waves with self-driving technology.
As you might expect for a company in flux, sentiment is mixed on BBRY stock.
EarningsWhispers.com reports a whisper number of 2 cents per share for BlackBerry Q4 earnings — 2 cents better than the consensus, but Thomson/First Call indicates that only one of the 19 analysts following the stock rate the shares a “buy” or better.
Meanwhile, short interest has been on the rise lately, gaining 11% during the most recent reporting period. As a result, some 53.7 million BlackBerry shares are now sold short, representing a sizable 10.2% of the stock’s total float. While a short-squeeze situation could come into play, it would take a rather impressive quarterly report and ensuing rally to force these shorts to be in any hurry to buy back their positions.
What Option Pits Are Saying
Click to Enlarge Over on the options front, BlackBerry short sellers appear to be taking some precautions for just such an eventuality.
At last check, the March/April put/call open interest ratio arrived at a rather bullish reading of 0.33, with calls tripling puts among options set to expire within the next two months. However, this reading rises sharply to 0.66 when we look at just the 31 March series (i.e., those options most affected by BlackBerry’s quarterly report).
Overall, 31 March implieds are pricing in a potential post-earnings move of about 5.7% for BBRY stock, which is well below historical volatility heading into earnings. The resulting upper bound lies at $7.40, while the lower bound rests at $6.60.
While a better-than-expected report could send BlackBerry sharply higher, the $8 level may cap all but the most enthusiastic of rallies. Support, meanwhile, appears to be holding firm in the $6.50 region, just below the expected post-earnings downside move.
2 Trades for BBRY Stock
I’ll be honest here. Trading BlackBerry ahead of Q4 earnings is going to be a crap shoot. The company is in transition, and nobody’s sure just what to expect from this latest iteration of BlackBerry. But, with sentiment leaning bearish ahead of the report, expectations are leaning toward the low side.
This creates the opportunity for a rally on news that may not be as stellar as you’d typically see with an earnings report.
Call Spread: As such, traders may wish to take a chance on betting bullish on BBRY stock ahead of earnings. Along those lines, an April $7/$7.50 bull call spread has a solid chance at hitting its maximum profit potential.
At last check, this spread was offered at 15 cents, or $15 per pair of contracts. Breakeven lies at $7.15, while a maximum profit of 35 cents, or $35 per pair of contracts, is possible if the stock closes at or above $7.50 when April options expire.
Bear Put Spread: On the other hand, there is the very real possibility that BlackBerry could have a few skeletons hidden in its closet that may come out with Friday’s quarterly report. Those looking for a bearish play might want to consider an April $6.50/$7 bear put spread.
At last check, this spread was offered at 15 cents, or $15 per pair of contracts. Breakeven lies at $6.85, while a maximum profit of 35 cents, or $35 per pair of contracts, is possible if BBRY stock closes at or below $6.50 when April options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
