How to trade BlackBerry without getting burned

BlackBerry CEO Thorsten Heins officially unveils the BlackBerry 10 mobile platform as well as two new devices in New York.
Timothy A. Clary | AFP | Getty Images
BlackBerry CEO Thorsten Heins officially unveils the BlackBerry 10 mobile platform as well as two new devices in New York.

Traders are getting awfully enthusiastic about BlackBerry—but it's important for bulls to bet prudently.

BlackBerry shares are trading much higher on Wednesday, as speculation heats up that Lenovo could make a bid for the company. In July, BlackBerry announced that it was seeking a buyer or strategic partnership, which caused the stock to rally from $9 to over $12 before settling into a range just above $10.

(Read more: BlackBerry may be spinning off messenger service)

On Wednesday, option trading has been unusually heavy in the stock, with the bulk of volume concentrated in weekly call options. After only 30 minutes of trading, more than 20,000 calls had traded versus only 4,600 puts, as traders rushed to make bullish bets on the stock. The most active option Wednesday is the 10.5-strike call expiring on Friday, of which the majority of trading has been initiated by buyers.

The news driving Wednesday's BlackBerry spike is purely speculation, since the Lenovo rumor is unconfirmed. This makes buying calls into the spike a risky prospect, since volatility has already risen dramatically for options expiring Friday and the next.

Traders who want to play the upside momentum in this stock without outlaying a lot of option premium should consider selling puts at a level at which they are willing to own the stock. Another option is buying vertical call spreads.

Analysts have suggested that a buyer of this company may be willing to pay up to $12 or $13 per share, but with each day that the company continues operating, BlackBerry deplete its cash hoard—and this could put downward pressure on future bids. When shares spiked in July, they rose to $12, but were unable to hold that level for even a day.

(Read more: What's BlackBerry worth, anyway?)

Therefore, selling the 11- or 12-strike calls against a long position in the 10- or 10.5-strike calls could be the best way to play this recent momentum.

Disclosures: None to report.

Brian Stutland is managing member of Stutland Equities and a contributor to CNBC's "Options Action." Follow him on Twitter: @BrianStutland.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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