Options in the smart phone wars

Chart 2 – January 2016 reflects significant uncertainty over share price – note the one-sided Probability Distribution at sharply lower prices


However, the bell curve looks strange by the time you get to January 2015. And even stranger by the time you get to January 2016 (see Chart 2). Considering the almost evens-odds of settling at $10.00 or below by June, the January 2016 expiration implies a higher chance of a lower share price at that time. According to the IB Probability Lab the chance that Blackberry shares will close below $9.00 in two years’ time is 57%. And investors’ defensive stance in the options market suggests a 38% chance its shares will close below $6.00 at that time, which is roughly the odds the market assigns to closing below $9.00 per share by June 2014. Clearly such pricing meshes with Mr. Chen’s “50-50” assessment causing buyers of protective options to assign higher prices to lower strike puts.

It will likely take more time before bearish analysts have a change of heart over the prospects for Blackberry. The first step on that journey is a management strategic change – already underway. Judging by the recent rise in shares of Blackberry, there are some who strongly disagree that Blackberry can be written off. Clearly the market for longer-dated options expirations has strong reservations about the outlook for Blackberry. That market might prove more fruitful for option traders less bearish on the prospects for Blackberry than the regular market for its shares.


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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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