Tuesday, June 25, 2013

Research in Motion (BBRY) - Earnings Approach, But is Vol Too Low? Is Obsolescence Still a Possibility?

BBRY is trading $14.34, up 1.7% with IV30™ up 7.7%. The LIVEVOL® Pro Summary is below.

Research In Motion Limited is a designer, manufacturer, and marketer of wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services, it provides platforms and solutions for seamless access to information, including e-mail, voice, instant messaging, short message service (SMS), Internet and intranet-based applications and browsing.

This is a vol note with earnings approaching -- but it's actually not an elevated vol note, rather, a curiously low vol given the event about to take place on 6-28-2013 BMO (i.e. earnings).

Let's start with the Charts Tab (one-year) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see that complete reversal and recovery for the firm based on BBRY version 10.  These guys were considered dead in the water -- even I pounded on them on a few occasions when I asked quite literally, if they had become obsolete.  Well, as of this writing the answer would be, no Ophir, they are not.  We can see the stock has risen from an annual low of $6.22 to now well more than 100% higher -- hope springs.

But this is actually a vol note, so let's turn to the one-year IV30™ chart in isolation, below.

First and perhaps most obviously, we can see the abrupt run up in the implied of late as earnings approach with IV30™ rising from 52.93% on 5-24-2013 (so a month ago) to now over 84%.  That's actually pretty normal.  What I find somewhat "abnormal" is the level of the implied right now.  For the prior three earnings releases the IV30™ hit 95.51%, 92.44% and 95.90% respectively for Sep-2012, Dec-2012 and Mar-2013.

If you look back at that isolated IV30™ chart and exclude today -- the implied was in the high 70's.  Now it's popping and my best guess is that it will continue to rise.  The oddity is how long the vol stayed depressed and how quickly it's rising.  Also, as we get further and further into the discovery of how good (or not) BBRY 10 will be, the company's future again is on the line.  If BBRY v10 fails, then we go right back to questions of obsolescence.  It feels like the implied should crack 100% withing a couple days, and if not, then is that vol too low?

Finally, let's turn to the Options Tab for completeness.

Across the top we can see Jul vol is priced to 86.82% and Aug is priced to 75.42% (that vol diff is due to earnings).  Let's see how this plays out -- a mid 80% implied could be a bit low, and a super 100% vol could be too high.  There is a non-trivial chance the vol rips up in the next two days. Ya know, or not...

This is trade analysis, not a recommendation.

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