BlackBerry Ltd (NASDAQ:BBRY) is but a fraction of its all-time highs, but its recent performance is worthy of note.
Fundamentally, I’ve lost track of what’s supposed to be the exciting part of BBRY. I am sure that fans of the company will furtively remind me that’s it’s more than a repository of intellectual properties.
But until that becomes the mainstream fact, I only take a few trades a year with lots of room for error like this one that was an easy win late March. Not all trades are going to be this timely, but I bet that I could reset for another easy win through year-end.
BBRY rallied over 50% from its last earnings report in March. More recently the stock has had two massive candles on news of potential new income streams perhaps from the auto industry. Extra sharp rallies of this type do not make for ideal entry points long into a stock.
Even though the bounce makes chasing price risky, its emphatic nature also confirms that the lower prices from where Blackberry bounced were wrong, so they are likely to hold as future support if needed.
Furthermore, most analysts have reasonable expectations of BBRY stock, so with moderate expectations there is little threat of downgrade headlines. So with clarity on both level and event risk, I can sell risk for income in the stock.
This is not the same as saying I am bullish an upside move for BBRY stock, so I won’t be buying the stock or any calls. I don’t want to risk being a latecomer to the this tranche of the rally, so I will instead set the trade directionally bullish by selling risk against proven support levels.
The Trade: Sell the BBRY Jan 2018 $8 put and collect 50 cents to open. I have a 75% theoretical chance of success if BlackBerry stock stays above the strike price through mid-January. Otherwise I accrue losses below $7.50 per share.
Although this is a bullish trade, I don’t need BBRY stock to rally to profit. As long as price stays above my sold strike, I retain maximum gains
To reduce the exposure that comes from selling naked puts, I would use the $8/$7 credit put spread. Both setups have the same theoretical of chance of success and the spread still allows for more than 20% yield.
Alternatively, I would need to buy BBRY stock for $10.10, then need it to rally another 20% higher to match the performance of the bull put spread.
Learn how to generate income from options 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.
