Traders have been scooping up Research in Motion's
The smartphone maker on Monday struck a deal with a Hong Kong-listed company to distribute the Blackberry in China. On Tuesday, China Mobile <0941.HK> and RIM said they would offer BlackBerry handsets and Internet service to consumers as well as smaller companies there.
There are a few factors coming together that could push the stock up as much as $80 by January expiration, said Victor Schiller, president of Investors Observer, an options research firm in Charlottesville, Va, said on Wednesday.
RIM is tapping into the Chinese smartphone market and its earnings could surprise to the upside, Schiller said.
RIM shares were up 3.28 percent at $63.17 by afternoon trading on the Nasdaq. The stock was oversold a few weeks ago and is now starting to bump against its 50-day moving average of around $62.96.
The Canadian company is due to report quarterly results on December 17, the day before December options expiration.
Analysts expect a profit of $1.04 a share on sales of $3.8 billion for the quarter ended in November, according to Thomson Reuters I/B/E/S.
In September, RIM had reported a lower quarterly profit and gave an outlook that missed analysts' forecasts, sending its shares tumbling.
The news about China was the catalyst that brought investors back into Research in Motion. There has been call buying this week, said William Lefkowitz, options strategist at brokerage firm vFinance Investments.
Some players picked up calls as an earnings play, speculating quarterly results will be better than projected, Lefkowitz said.
In all, about 69,000 calls traded in RIM, more than twice the number of its puts in the afternoon session, according to option analytics firm Trade Alert.
A number of traders focused on calls with strike prices far from the current share value.
The December $60, $65 and $70 call strikes and the January $70 call strikes were active, option participants said.
Investors often turn to equity call options, granting them the right to buy the company's stock at a fixed price within a specified period, in anticipation of a share price rise. A put conveys the right to sell the option at a preset price.
The demand for bullish options follows Tuesday's call purchases for RIM shares at $80 apiece that expire in January.
The January $80 call strike has the highest number of existing positions held by investors with 96,280 contracts heading into Wednesday, according to Schaeffer's Investment Research.
Yesterday we saw a big buyer of the out-of-the-money calls in RIM, notably the January $80 strike, said Joe Kinahan, chief derivatives strategist at TD Ameritrade.
WhatsTrading.com option strategist Frederic Ruffy also noticed demand for those bullish options on Friday and Monday.
In all, it looked like 50,000 January $80 calls were bought for an average premium of 36.50 cents in a bet that RIM shares would move substantially higher by mid-January, Ruffy said.
This was a pretty aggressive play since these $80 calls are now about 27 percent out-of-the-money, he said.
Before Wednesday, RIM calls outpaced puts by almost two to one in open positions, said Brian Overby, options analyst at online brokerage TradeKing.
Total call open interest was 973,943 contracts versus 460,668 put contracts as of Tuesday's close, TradeKing data show.
(Editing by James Dalgleish)