GoPro: Strap Into an Actionable Buy-Write in GPRO Stock Now

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It’s been a rough and tumble couple of months for action sports camera upstart GoPro (GPRO) and its shareholders. And while a bottom may not be in just yet, the landscape for a broader reaching, buy-write position in GPRO stock is looking picture perfect.

gpro stock gopro stock gopro hero4

A weak broader market the past couple of weeks certainly hasn’t helped the GoPro share price. But GPRO stock was already spinning lower and well on its way to securing its correction of nearly 50% since hitting its year-to-date high of $65.49 one month ago.

The hard turn for the worse in GPRO stock has been spurred by worries of foreign competition out of China and overall slowing growth within a niche market that some believe is a fad.

Most recently, bearish investor sympathy hit GPRO stock after the company’s image processing chip supplier Ambarella (AMBA) reduced its forecast and warned of lower revenues this past week.

An Actionable GPRO Stock for Bulls

Receiving less camera time these days, analysts from Dougherty and Wedbush on Thursday spoke favorably of GoPro’s prospects going forward, suggesting the GPRO stock’s sell off offers a very attractive entry point based on both companies’ “outperform” ratings and GPRO’s $70 price target.

In defending GPRO stock, the analyst from Wedbush went on to note that GoPro is “in the perfect position to grow.” The upbeat stance is based on the “selfies” phenomenon, plenty of room for international expansion and GoPro’s move into the developing drone consumer market.

GPRO Stock Weekly Chart

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Source: Charts by TradingView

Despite the large price decline, GPRO stock could still be a slippery slope for bulls looking simply to go long GPRO.

Checking the weekly chart, GPRO stock has taken out a key low from March as part of its steep correction this past month. That’s good news in our view when looking to pick up a stronger value bet, but it still may not be enough.

As traders can see from the GPRO stock chart, the low of $28.65 established in the first week of last year’s IPO has yet to be challenged. And for a stock more out of favor than most tickers right now — a test or even weaker price action certainly can’t be dismissed altogether.

As of early Friday trading, with GPRO stock at $32.30, there’s still a bit more than $3.60 or roughly 11% of downside until a full-fledged test of GoPro’s all-time-lows could come into play.

If you’re not scared of the view and still have a “bring it on” attitude after the hard selloff already at hand, a more flexible game plan for profiting from a GPRO stock purchase is the buy-write position.

GPRO Stock Buy-Write Strategy

gpro-volatility
Source: Charts by TradingView

Using a buy-write, the GPRO trader is given a trading range with which to profit and is much less likely to get hurt in a volatile environment that could include more downside in GPRO stock.

The ability to profit over a range of prices, even if shares of GPRO stock move lower, is due to the sold call premium which reduces the trader’s cost basis on the stock.

Right now, the buy-write is even more attractive as writing call premium on GPRO stock is favorably priced while implied volatility is high. Additionally, as the extra credit cushion from selling a call follows a sizable downturn in GPRO stock, the strategy is all the more more appealing.

Reviewing GPRO stock’s options board for buy-writes, the October $33 call looks attractive. Priced just below mid-market at $3.50, the combined long stock and credit received result in a cost basis of $28.80 for the buy-write, compared to simply buying stock for $32.30.

Instead of hoping a bottom has been reached and only being able to turn a profit if GPRO turns higher, the buy-write’s breakeven is nearly 10% lower, thus allowing a substantial advantage whichever direction GPRO stock might move.

Finally, the large price advantage in the GPRO stock buy-write uses shorter-term October premium which expires prior to GPRO’s next earnings release. So this strategy is camera-ready for action!

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/gopro-strap-actionable-buy-write-gpro-stock-now/.

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