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BlackBerry Is About to Get Crushed

BlackBerry (NASDAQ:BBRY), the tech stock formerly known as Research In Motion, is off almost 30% from its January highs.

Thus, the million-dollar question for BlackBerry shareholders is whether the company is just pausing for a breather before it continues its ambitious return to smartphone prominence … or whether BBRY was simply a great swing trade to end 2012, and it’s now time to run screaming.

Those who have lit me up in the comments section for the past few months have no question over what side I line up on here – just take this Jan. 8 headline, “I Still Think RIMM and BB10 are Doomed.”

I won’t rehash my past concerns beyond simply mentioning the obvious: that this is an all-or-nothing period for BlackBerry, a company currently operating in the red and seeing continued erosion of smartphone market share. If the Z10 and Q10 fail, BlackBerry has some patents and software clout … but literally nothing else going for it.

Unfortunately, here’s why I think the Z10 and Q10 are doomed:

Poor Initial Demand Concerns: The BlackBerry admittedly has a global following, unlike the Apple (NASDAQ:AAPL) iPhone which many claim is a distinctly American gadget that lacks international dominance. But the initial launch markets haven’t been much to sneeze at. Consider a report this week shows a U.K. sales slump right out of the gate, with poor sell-through rates and recent price cuts. The story is the same in BlackBerry’s native Canada, with Canaccord Genuity writing that it “reduced our February quarter BB10 smartphone shipment estimates from 1.75M units to 300K units.” That number was later revised back up a bit to 800,000… but still, the more than 50% cut  from 1.75 million doesn’t bode well for other global markets.

Bad U.S. Launch Timing: Regarding the U.S., a recent report hints that the Z10 will first hit the U.S. market on March 15 via carrier AT&T (NYSE:T). Unfortunately, that is just a day after the Samsung (PINK:SSNLF) Galaxy S4 is set to debut. Not a great way to sell yourself, considering Samsung is a transcendent smartphone brand that has already caused headaches for the iconic iPhone.

App Troubles: BlackBerry tried to tout the fact that its new OS has the biggest app universe “at launch” of any smartphone software. Yeah, but that’s just because the company is the last in line and a number of amazing apps have already been developed for iOS and Google’s (NASDAQ:GOOG) Android OS. All BBRY did is ask developers to reprogram Angry Birds or Pandora (NYSE:P) to function on a BlackBerry device — not create unique apps native to BB10. But aside from not having any unique first-movers, the real risk is big-name apps that won’t play with BlackBerry. Consider that Netflix (NASDAQ:NFLX) has no plans for a BB10 app. Or consider that Yahoo! (NASDAQ:YHOO) has killed its BlackBerry app even as it continues to provide stock quotes, weather, email and other content support via apps on Android and iOS devices. So much for countering the old criticism that BlackBerry can’t compete on the app front.

Wall Street Sentiment: Short interest as of mid-February was actually up from January. And although the very high volume in this stock might prevent a dramatic short squeeze, it’s still worth noting that a massive 136 million shares are held short. Don’t discount the negativity on Wall Street and the ability to drive down share prices, even if you think BlackBerry doesn’t “deserve” it. Furthermore, at the end of February MKM partners cut BBRY to “sell” with a target of just $10. And while UBS did raise the company to “neutral,” BlackBerry is already above its forecast of $13 for shares. So clearly Wall Street is not betting on big-time upside here.

So, how can investors play this?

Well, BlackBerry remains volatile, so I would advise against selling shares short lest you get squeezed the wrong way. The safer route in my opinion is to buy puts.

For instance, right before the event, I recommended buying June 22 puts on BBRY (then RIMM) at $17, and investors are near the money on that trade.

I expect continued trouble for BlackBerry and some seasonal softness in the market, so I think it’s possible the stock could fall another 15% to 20% in a matter of months. And heck, should the launch data be ugly, we could get that in just a few sessions.

So, I’m watching the April 5 puts with a strike price of $16.50. Right now, contracts are $3.70, putting you at the money at $12.80. That’s less than a 5% drop from here, which is very reasonable.

Based on the fact that I expect continued trouble for BlackBerry and some seasonal softness in the market, it’s possible the stock could fall another 15% to 20% in a matter of months. Should the launch data be ugly, heck, we could get that in just a few sessions after the company reports earnings at the end of March.

And now, on to the inevitable angry comments below. Let me have it!

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

Editor’s note: A previous version of this story did not mention that Canaccord Genuity revised their Z10 forecast back up after the initial cut. Apologies for the error.

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