Trade Update – Closing Short Call in $BBRY Spread

by Dan May 11, 2015 10:44 am • Trade Updates

Back in mid January we made a sort of “where there is smoke there is fire” trade in BBRY (read below).  The stock is up 2.5% today on unconfirmed take-over rumors (here).  To refresh here was our trade from January:  

TRADE:  BBRY ($10.20) Bought June 11 / 15 Call Spread for .75

-Bought 1 June 11 Call for 1.10

-Sold 1 June 15 call at .35

At this point it makes no sense to stay short the June 15 calls and cap our gains if a deal was actually announced.

Action: Buy to Close BBRY ($10.11) June 15 calls for .02 to close
New Position: Long BBRY June 11 calls for .77 (currently worth .23)

I’ll say it again, as I said back in January, playing for take-overs with long premium options structures are generally low probability events. A BBRY deal with numerous potential suitors makes sense and we liked having the near the money exposure but as you can see, waiting around for a deal with long premium can hurt. But at this point it makes little sense to remain short the short leg and we’ll at least try use that option having decayed to our advantage.


Original Post January 15th, 2015: New Trade $BBRY: Berry Possible

Shares of Blackberry (BBRY) have had a wild 24 hours after yesterday’s Reuters report that Samsung had approached BBRY about a possible takeover, per Bloomberg:


The stock rallied 30% yesterday increasing even after the market closed until the company issued a statement denying any takes with Samsung.  The stock is down 20% today, holding onto a bit of yesterday’s gains:

BBRY 2 day chart from Bloomberg
BBRY 2 day chart from Bloomberg

The stock has been on our radar since early December, after inking a deal with Samsung to provide security solutions for its enterprise Android devices.  This was our take on December 4th:

BBRY has a $5.6 billion market cap, $2.7 billion in cash, and $1.5 billion in debt. When you put the net cash together with their patent portfolio that some view as being worth between $1 and $2 billion and their enterprise network which is worth maybe $1 billion the stock looks cheap.


for those who happen to be long or want to be long we suggest a stock alternative to long stock. The Feb 10 calls are reasonable vol and can be bought for around 1.35. That’s a break even just .85 above where the stock is trading which isn’t great but it’s not terrible considering that you have unlimited upside above that (if it goes higher it’s probably a lot higher or why be n the stock) and you’ve defined your risk much better to the downside. We’d rather own those calls than the stock here.

So what now? …

As you know, while I am a tad to skeptical when it comes to situations like this I am also willing to take a shot on “where there is smoke there is likely fire” stories.

I reckon the sum of the parts equation just got a little bump, and with a market cap of $5.4 billion, $2.7 billion in cash, and $1.65 billion in debt, if the company was able to get back in the black and actually grow sales again, there may ultimately be that allusive bidder for the most valuable parts of the company as they diversify away from hardware.

At this point the stock looks like its reached a sort of equilibrium. The company recently reported earnings in mid December, held an analyst day in November, was front and center at CES in Las Vegas and has been the focus of takeover rumors. Despite all that it’s right back at the mid point of the six month range.  The short interest at 27% is also worth noting. making moves like yesterday that much more likely.

So here’s the lotto ticket playing for more rumors if not something tangible in the next few months:

TRADE:  BBRY ($10.20) Bought June 11 / 15 Call Spread for .75

-Bought 1 June 11 Call for 1.10

-Sold 1 June 15 call at .35

Break-Even on June Expiration:

Profits:  between 11.75 and 15 make up to 3.25, max gain of 3.25 above 15

Losses: between 11.75 and 11 lose up to .75, below 11 lose full .75

Rationale:  This idea is a bit speculative, as the company has been picked over for years by potential acquirers and none seem interested. So for this trade to work will either need a full on turn around in their business, which I highly doubt, a breakup of the company or sale of the patent portfolio, or an all out takeover.  This is the sort of trade where I am going to risk what I am willing to lose, as I do not believe in the company’s product portfolio or strategy but think the parts are likely worth more than the existing public market valuation and the assets inside a larger company like Samsung could be a whole heck of a lot more valuable.