Shares of Fitbit Inc (FIT) were flying yesterday on the heels of positive comments from Citi analyst Stanley Kovler. By the day’s end, Fitbit stock notched a 12% gain on monster volume.
The fitness wearables company has been anything but fit since going public in June of last year, with shareholders hoping desperately for any type of positive catalyst.
While Wednesday’s moonshot is probably a one-off pop, the FIT stock chart is beginning to well, “shape up” again. A short-term uptrend has taken root, giving the bulls a foothold for the first time in months.
Click to Enlarge
Shares of FIT have drifted higher during the recent market melt-up, bringing the stock back above the 50-day moving average. Accumulation days, or high volume up days, are also cropping up with increasing frequency since Fitbit bottomed in late February. That’s a good omen.
Although Fitbit is retreating in early morning trading, the 2.5% drop is quite tame compared to yesterday’s rip. And it’s providing a better entry point for bulls looking to get in on the action.
Profit From FIT Puts
The liquidity in the options market offers easy entries and exits, and Fitbit’s activity lately makes it a viable candidate for an options play.
If you think FIT can remain above the $15 level over the next month, consider selling the May 15 put for $1.15. The max reward is limited to the initial $1.15 and will be captured provided the put expires worthless next month.
In selling the put you obligate yourself to buy 100 shares of FIT at $15. However, since you received $1.15, your true cost basis would actually be $13.85.
If scooping up shares around $13.85 sounds appealing, then you could just ride the put to expiration and allow assignment if the stock is below $15. Otherwise, look to buy back the put prior to expiration to close out the trade.
Just a heads up, Fitbit is reporting earnings in May, so expect to see an uptick in volatility when it does. The best case scenario would be an upside surprise giving us quick profits for the naked put play.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
