Take a deep breath everyone - BlackBerry (NASDAQ:BBRY) is set to announce its earnings on 3/28. Right now, most investors are probably some combination of nervous and excited (with the magnitude of each dependent on the size of the position). Now, as much as I love the thrill of going in guns blazing into what is essentially a binary event, I don't think that this is a prudent move for anyone without nerves of steel. It's time to take a deep breath and think calmly about what to do here. I'll try my best to give my views on the matter.
Lower Your Cost Basis/Take Some Profits
Seriously, don't be greedy. Do you own this thing at $6? $10? Don't be shy about taking some profits off of the table. Am I saying sell your whole position? Of course not, but one of the most frustrating experiences in any investor's career is to be sitting on a mountain of paper gains only to see them reversed in a matter of a couple of really bad trading days. Every investor dreams of having a 10 bagger, but the reality is that BlackBerry probably isn't going to see $140/share anytime soon (if ever). A double from here to the $30 level isn't unreasonable, but you have to remember that a double from $6 -> $12 is a lot easier than a double from $14 -> $28, since the latter requires a much more substantial raw dollar addition to the market cap.
So no matter what you do - writing calls, selling a portion of your shares, or a purchase of puts - protect some of your profits. You may not capture every last ounce of the potential gains if the hedge turns out to be unnecessary, but you'll be crying a whole lot less if things go south.
Don't Fall In Love With This One
While it's generally not a good idea to fall in love with a stock, there are just some that are much more "lovable" than others. If it pays a solid dividend, and it's growing consistently, then it's a lot safer to "love" that type of stock through the good and the bad than it is to be in love with a smartphone turnaround play. The odds are really stacked up against this one; Apple's (NASDAQ:AAPL) still a major force, the Android phone guys are doing some wonderful work, and even Windows Phone seems to not be totally dead. It's an uphill climb for BlackBerry, and despite some of the very interesting and unique features of the BB10 platform, it could still be a commercial flop.
Don't fall into the trap of turning a "trade" into an "investment", and I suspect that many people holding BlackBerry are here short-term betting on a short squeeze. If the trade works, cash out and make your money, and if the trade looks like it's not going to work, have an exit strategy that doesn't leave you in financial ruin. The odds of long term survival for the company are not high enough to bet the farm on it, and with no dividend, if you're caught holding the bag, there will be very little solace for you in the months and maybe even years ahead.
The stock market is ultimately about making money. Some people prefer long term, fairly stable investments and others prefer short term, catalyst driven trades. Many enjoy a healthy mix of the two activities. To myself, and to many others, BlackBerry is a trade, and my only goal is to make money. My bet is that the long side offers a better risk/reward than the short side, and I have taken enough profits on my position that I can sleep soundly going into the earnings report.
Will I make as much money if the stock soars after the report now that my position is smaller? Nope, but that's my risk tolerance. Find yours, stick to it, and no matter what, be ready for an exciting 3/28.
Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.