Go Big on GoPro Earnings: 2 Trades for GPRO Stock

Advertisement

Shares of wearable camera manufacturer GoPro Inc (GPRO) have been beaten to a pulp during the past quarter. In fact, since disappointing investors with its second-quarter report, GoPro stock has plunged nearly 50%.

Go Big on GoPro Earnings: 2 Trades for GPRO StockHowever, GPRO stock is showing signs that a bottom may be in place, and with a solid quarterly report, the shares could be in for a quite a post-earnings bounce.

By the numbers, Wall Street has set seemingly lofty targets for GoPro earnings. The consensus is currently expecting profits to soar 142% to 29 cents per share, with revenue seen jumping nearly 55% to $433.59 million. The whisper number is even higher, with EarningsWhisper.com reporting expectations for a profit of 31 cents per share.

That said, GoPro has a habit of beating quarterly targets. For instance, GoPro earnings have topped the Street’s forecast in four of the past five quarters by a wide margin. As for expectations, poor GPRO stock price could mean that slow sales for the entry-level Hero 4 Session may already be factored in.

Turning to a broader picture of GoPro’s sentiment backdrop, we find that the brokerage community is quite bullish on the stock. According to data from Zacks, GPRO stock has attracted 10 “buy” ratings, five “holds” and no “sell” ratings. Additionally, the 12-month price target of $50 represents an impressive premium of 74% to the stock’s current trading range.

Elsewhere, short sellers are betting big on another GPRO stock decline. Specifically, some 31.7 million GPRO shares were sold short as of the most recent reporting period, accounting for nearly 52% of the stock’s total float. With GPRO appearing to put in a bottom, some of these bears may begin to take out insurance against a potential post-earnings rally.

Speaking of insurance, GPRO call OI has risen steadily during the past week. While the current October/November put/call open interest ratio of 1.34 shows signs of continued pessimism against GPRO, the weekly Oct 30 series put/call OI ratio has plunged to perch at 0.86. While this ratio may seem high when compared to perennial bulls like Apple Inc. (AAPL), this weekly put/call OI ratio for GPRO is infact near a short-term low.  

10-27-2015 GPRO
Click to Enlarge
Overall, weekly October 30 series implieds are currently pricing in a potential move of more than 14% for GPRO. This places the upper bound at $33.16, while the lower bound lies at $24.84.

Since both levels put GPRO stock outside of significant support and resistance levels, there is the potential for a greater-than-expected move.

2 Trades for GPRO Stock

Call Spread: With GPRO stock looking at a potential techincal bottom, and weak Hero 4 Session sales already priced in, the path of least resistance appears to be higher. Couple this with the potential for a rather significant short-squeeze play, and GoPro could be in for quite a follow-through rally on a positive report.

Those traders looking to bet on a post-earnings rally for GPRO stock might want to consider a Nov $30/$35 bull call spread. At last check, this spread was offered at $1.38, or $138 per pair of contracts. Breakeven lies at $31.38, while a maximum profit of $3.62, or $362 per pair of contracts, is possible if GPRO closes at or above $35 when November options expire.

Put Sell: Those traders not yet ready to go all in on the bullish GoPro trade may want to consider a more neutral approach with a put sell position. At last check, the weekly Oct 30 series $24 put was bid at 47 cents, or $47 per contract.

As long as GPRO stock trades above $24 through expiration this Friday, traders pursuing this strategy will keep the $47 premium. However, if GPRO trades below $24 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $24 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/10/go-big-gopro-earnings-2-trades-gpro-stock/.

©2024 InvestorPlace Media, LLC