If you like turnaround plays, BlackBerry Ltd (NASDAQ:BBRY) is certainly a candidate. But because BlackBerry faces real challenges ahead, I suggest you show restraint and consider a way to play BBRY stock without buying the stock.
BlackBerry — the original smartphone manufacturer that was upended by the likes of Apple Inc. (NASDAQ:AAPL) and Samsung Electronics (OTCMKTS:SSNLF) — is trying for a second act in a handful of today’s growth markets, ranging from software solutions to licensing and intellectual property.
There’s nothing wrong with that, right?
The bad news is that, based on last Friday’s disappointing top and bottom lines, if a successful turnaround is going to take hold, it will require much stronger future results than what BlackBerry’s Q1 report showed.
I’ll let readers sift through those details and decide for themselves. But based on the initial 12% price drop following BlackBerry’s report, other investors appeared to collectively agree that BBRY stock still is very much a work in progress.
There could be good news in all of this, however. If we’re to believe charts are leading indicators of future business success, despite the hard bout of selling pressure, all is not lost for BlackBerry bulls.
BlackBerry’s Weekly Chart
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So far, the chart action has been net positive.
The provided weekly chart of BBRY stock shows an area of price congestion that’s defined by a few key price pivots. There also are a couple Fibonacci supports wedged in this zone from about $8.50 to $9.25 — and for all intents and purposes, the 200-day simple moving average.
Technically, Monday’s daily price action confirmed a successful challenge of support by putting together a bullish engulfing candlestick. In our opinion, the price is enough to consider a bullish play in BlackBerry, but without getting carried away.
Let’s look at the trade.
How to Trade BBRY Stock Today
While I’m inclined to believe BlackBerry can rally from Monday’s closing price, I’m also of the mind the recent highs which failed at resistance won’t be penetrated anytime soon. Friday’s report simply wasn’t that great, and barring some unforeseen catalyst, that should keep a cap on BBRY stock.
Having said that, one lower-risk strategy which stands to profit from a limited drift higher in BlackBerry shares is a bullishly positioned long call butterfly. With BBRY at $10.21, the Jul $10/$11/$12 combination is attractive and priced at 26 cents.
So what does this spread offer traders?
For starters, if Monday’s bullish engulfing pattern fails, the position’s loss is limited to 26 cents, or 2.5% of the risk in BBRY stock. That sounds even better when one realizes the candlestick low amounts to nearly 9% risk for owning shares, and nearly 18% if BlackBerry were to crater below the low of our outlined support band at $8.50.
How about the upside? An expiration breakeven level of $10.25 is just pennies away. What’s more, this strategy will allow for some type of profitability within a nice range from $10.27 to $11.73.
The return could be as little as 1 cent, though, and be warned: Traders could also find themselves forfeiting some or possibly all of the debit if BBRY establishes new highs over the next month at expiration.
Still, with a sweet spot of $11 that’s firmly entrenched in congestion, and profits approaching 74 cents (or nearly 285%!) at expiration, I don’t mind putting a limit on this bull.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
