BB Analysis

BlackBerry Ltd. (BB)

BB publishes earnings on Wednesday before the opening bell.

I shall use options that trade for the last time 10 days hence, on Dec. 29.

Implied volatility stands at 55%, which is 5.5 times the VIX, a measure of the volatility of the S&P 500 index.

BB’s IV stands in the 73rd percentile of its annual range and the 88th percentile of its most recent broad movement.

The price used for analysis was $10.91. With no expectation of an earnings surprise and no strong trend, I shall use a direction-neutral iron fly construction.

Premium: $0.80 Expire OTM
BB-iron fly Strike Odds Delta
Calls
Long 12.50 87.2% 16
Break-even 11.80 70.0% 34
Short 11.00 56.2% 49
Puts
Short 11.00 44.1% 51
Break-even 10.30 59.0% 36
Long 9.50 83.6% 13

The premium is 0.80% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

The zone of profit in the proposed trade covers a $0.80 move to the upside and a $0.70 move to the downside. The biggest immediate move after each of the past four earnings announcements was $3.31, and the average was $1.24. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.73.

The expected move covering 85% of occurrences is $0.89, beyond the profit zones in either direction.

The bid/ask spread is 11.8%.

Decision for My Account

So much to dislike about BB’s analysis. The average move and the expected move are wider than the profit zone in either direction, and the bid/ask spread is wider than I like — I prefer single digits, the spread here is nearly 12%.

I’m passing on the trade.

By Tim Bovee, Portland, Oregon, Dec. 19, 2017

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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