BBRY Option play opportunity

Assuming we are fairly aware of what is going on with BB recently, I came up with this option play idea and I want to share it and I invite you to make constructive inputs, for that can benefit all of us.

So BB is brewing this potential turnaround story, and I'm on the optimistic side looking to bet on its recovery, but I will try to give my reasoning objectively. First of all, Its unlikely to be disputed that there is a tremendous upside IF BB does turn things around in the long run, but equally tremendous is its short term downside should BB fail to convince the masses that its plans are working out as expected. I mean Mar 28 ER its huge, its numbers will give indication whether BB has slowed if not stopped bleeding, and if the numbers are bad, the stock probably will nose dive to $7 in the following few weeks, but if numbers give signs of revival, then it would probably push for $11 and attract institutional interests and give the stock a solid foundation for greater future rally (BB was hanging about $6 when John Chen first took helm and reached $10.70 at one point).

Given the long term upside potential and short term downside risk, I think it creates an opportunity to formulate a plan that hedges short-term risk while provides a healthy exposure to the potential upside. I plan to construct a long straddle, but since downside risk is more immediate relative to the upside, I would acquire puts at more recent expiration relative to the calls I would purchase, which reduces total cost. For instance, I plan to use 5k on buying 60~80 puts expiring Sept 20 2014 strike 10, which is selling about 2.05 at the moment, so I would have to short puts to make sure I get the amount of puts I want under 5k (probably short half puts strike 9 expiring Jun 21 and the other half strike 10 expiring Mar 22 hoping that the Mobile show in Brazil would generate enough buzz for BB to lift the stock close or beyond 10). And then allocate the remaining 25k between Jan 2015 and Jan 2016 strike 10 calls, I personally would like to get 100 calls of which the majority in 2016.

Nothing so far is complicated, and obviously if things go well we'd be all smiling but what if things doesn't go well? What does my long straddle's risk profile looks like? As far as I can tell, given 60 puts at strike 10, I need the stock to dive close to $5 to break even (probably not going to happen as I wrote puts too) or I need it to reach $13 to break even, and this huge gap 5~13 is my sore spot. What is the worst that can happen? BB announces a M&A for $10 shortly after I set up my play. BOOM, 30k vanishes. But the probability is rather small IMO, the general perception is that John Chen is in the game for the long haul, even if he doesn't make it, he wouldn't likely to give up in the immediate short term. He seem to be rather determined to revive BB to the extend of dominating the regulated commercial arena once again. That been said, anything in the neighborhood of 8,9,11,12 would bring losses in the 10k~25k or 33%~83% range.

The range is wide and the potential of loss is real. It takes a leap of faith to set up this play and there are limited alternatives to enhance downside hedging without sacrificing upside exposure. One of such alternative I can think of is to wait patiently and set up the legs through price fluctuations in the coming weeks, definitely before Mar 28th, but the risk is that you might not be able to get enough swings to set up everything and most importantly, you may get caught in a one-sided movement. I'd rather set up in one session and then just focus on shorting covered calls/puts on a weekly basis for premium. In fact, I believe shorting covered calls/puts will provide great returns if done properly and that is one compelling reason for me to set up my calls far into the future.

This play can be used if you are the opposite of me, that you are very bearish, you simply reverse the call/put weight. While the potential for loss is high but with proper execution of shorting covered calls/puts, I think you should be able to limit your loss within 15k if things really go south in the next two ERs, and by then I would definitely consider sell out my calls as I would think a break up or sale of BB is eminently close.

So here is my plan, please generously give your opinion, feedback and insights.

Thanks!
Mike