No doubt shares of BlackBerry Ltd (NASDAQ:BBRY) are looking more secure on the price chart. But with no guarantees there and another sort of technical breach unlikely, getting dialed in with BBRY stock using a modestly bullish but range-bound options play is smart business. Let me explain.
It has been nearly a month since examining BlackBerry, the original smart phone manufacturer and a company attempting to successfully execute on a far-from-certain turnaround. And since that time, it has remained, for lack of a better description, an “all is quiet on the western front” situation off and on the BBRY stock chart.
Off the price chart of BBRY, the one piece of news which tried, but failed, to incentivize BlackBerry bulls into action was a business endorsement from the U.S. federal government’s National Information Assurance Partnership or NIAP.
In gaining authorities approval, Blackberry now has the right to sell its software tools for phone and text encryption. But the approval is far from exclusive and merely pits the company against staunch competition from Apple Inc. (NASDAQ:AAPL) and Samsung Electronic KRW5000 (OTCMKTS:SSNLF) among others.
As such, until and if contracts are signed, all remains quiet on that front.
And on the U.S. stock market where shares of BlackBerry reside, it has also been a period of relative quiet. The good news there is the turnaround in BBRY stock does look slightly more promising for bullish traders.
BBRY Stock Weekly Chart
BBRY stock hasn’t won over any fans of momentum-style trading the past few weeks. Technically speaking, however, there’s increased evidence a supportive situation for bullish investors is being established.
When I last wrote about BBRY on June 27, it was in the immediate aftermath of the company’s earnings reaction. An initial test of a key support zone appeared “net positive” in our view and sufficient for a softer delta, bullish options strategy.
Fast forward to this past Friday’s close and the BBRY weekly chart shows three consecutive inside doji candlesticks have formed while continuing to hold the detailed area of technical support. The price action is improved upon as stochastics has moved into an oversold position.
Net, net, BBRY stock’s current technical situation increases the likelihood of a bullish reaction in the coming days. Similar to last time though, any rallies in BlackBerry aren’t expected to breach resistance marked by the recent highs. At the end of the day, it’s our view the business narrative for stronger price momentum in BBRY is still very much M.I.A.
BBRY Stock Options Strategy
Given what’s been said, one lower-risk strategy which stands to profit from a limited drift higher in BBRY stock is a bullishly positioned long call butterfly. Reviewing BBRY’s options and with the stock at $10.04, the Aug $10/$11/$12 combination is priced for 22 cents and fits in well with our outlook.
So what does this spread offer traders? For starters, risk is contained to about 2%. Bottom line, if undesirable bearish volatility picks up, the small debit amounts to being a very inexpensive insurance policy compared to other long strategies.
If conditions in BBRY stock play out as planned, on the upside this modestly bullish spread offers traders a profit zone from $10.21 to $11.78 at expiration. Though unlikely, the sweet spot at $11 offers a maximum payout nearing 78 cents, or 350% if shares landed on the middle strike that day.
The real risk and likely frustration with this strategy is if BBRY moves higher as forecast, but continues to find a bid. Ultimately, above $12 the spread’s value collapses to nothing at expiration and if no other action is taken in the interim, this modestly bullish trader will forfeit 22 cents.
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.
