How to Trade BlackBerry Ltd (BBRY) Stock Around Q4 Earnings

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BlackBerry Ltd (NASDAQ:BBRY) is far, far removed from its heyday of being a dominant smartphone provider. Most high-profile personalities had a BlackBerry, touting two points of interest: security, and the iconic physical keyboard. However, BBRY stock is far separated from hardware at this point.

Source: BlackBerry

Now, BlackBerry is more of a repository of intellectual property and a software purveyor. That shift is challenging fundamental investors as they try to figure out the new norm, so for now, we will do best to merely trade the price action in BBRY.

And there’s no better time (or way) of doing this than around earnings.

BlackBerry fourth-quarter earnings will be reported Friday before the opening bell. The options markets are pricing in a move of plus or minus 45 cents in BBRY stock, so just more than 6%. Today, I want to set up a trade with a thesis that we could get an earnings pop — one that would start a rally toward a retest of the $7.50 area.

BBRY stock chart
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Don’t mistake this bullish thought with actual enthusiasm about the company’s prospects. This is a bet on BlackBerry price action, and nothing more. I see lower highs knocking on a floorboard, and if that area holds, it usually serves as a springboard for a bounce.

My conviction in this is low only because of the catalyst. The short-term reaction to earnings is always a pure guessing game. So strategies hinge on perception, thereby weakening my conviction. For that reason, I won’t buy BBRY stock outright and risk $7 per share.

Instead, I will use the options markets where I can risk a fraction to set the same thesis in action.

How to Trade BBRY Stock Here

The bet: Buy the BBRY Apr $7 call for 24 cents per contract. This is my maximum potential loss. I need BlackBerry to rally toward the aforementioned target.

I usually like to hedge my bet by selling puts to finance my bet. But in this case, I lack the conviction in the fundamental BlackBerry story, so I’m going to leave my max potential loss where it is.

However, I will share the idea for those who actually know more about the value in BBRY’s support levels.

The hedge (optional): Sell the Dec $5 put naked for 15 cents per contract. This trade has a 85% theoretical chance of success, thereby cutting the out-of-pocket expense in the upside entry by half.

Learn options as easy as 1-2-3 here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/how-to-trade-blackberry-ltd-bbry-stock-around-q4-earnings/.

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