I’ve ragged on Fitbit Inc (FIT) stock quite a bit in the past. The company makes health and fitness-related devices and software that pair up with smartphones — which makes it a niche of the market that Apple Inc. (AAPL) should already be dominating. To me, Fitbit has always felt like more of a product that should have been a “One more thing…” than a standalone business.
But Apple has dropped the ball lately, creating considerable opportunity for upstarts like Fitbit to make a name for themselves. FIT stock has considerable growth potential, as a result … and there is the possibility that, instead of innovating on its own, Apple taps its huge supply of on-hand cash and just up and buys Fitbit outright.
While that last point is clearly my own speculation, the upside potential for Fitbit stock remains — especially with FIT shares recovering nicely from the beating they took following its last quarterly earnings report.
Sentiment toward FIT stock remains as bullish as ever. According to data from Zacks, FIT has attracted 12 buy ratings and 10 holds, with nary a sell rating to be found. Additionally, the 12-month consensus price target of $22.29 represents a 53.2% premium to Fitbit stock’s current trading range.
Options traders are also extremely bullish on Fitbit stock. Currently, the June/July put/call open interest ratio for FIT stock arrives at 0.4, as calls more than double puts among options set to expire within the next two months. (This ratio plunges to 0.35 for the June 17 series.)
There may be more to this heavy call OI than meets the eye, however.
As of the most recent reporting period, FIT short interest totals roughly 36 million shares, or 28.2% of the stock’s total float. Short sellers often purchase call contracts as a hedge against a rally, but with short interest levels this high, a squeeze play is certainly possible despite the heavy call open interest.
Overall, June 17 series implieds are pricing in a potential post-earnings move of more than 5% for Fitbit stock. This places the upper bound at about $15.23, while the lower bound lies at near $13.77. Technically speaking, FIT has support near $14 and is facing resistance near $15.28, which is home to its 50-day moving average.
2 Trades for Fitbit Stock
Call Spread: Fitbit stock is on a winning streak right now after bouncing back from post-earnings losses. The shares are burning off oversold levels, and looking to challenge resistance near $15 — if only the market continues to cooperate.
For those wishing to side with Fitbit stock bulls, a July $15/$16 bull call spread has plenty of potential. At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $15.35, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if Fitbit stock closes at or above $16 when July options expire.
Put Sell: Alternately, if a bull call spread is a bit too aggressive for your taste, a June 17 series $13.50 put sell has a good chance of finishing out of the money. At last check, this put was bid at 15 cents, or $15 per contract. As usual with a put sell, you keep the premium as long as Fitbit stock closes above $13.50 when June 17 options expire at the end of next week. On the downside, if FIT trades below $13.50 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $13.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
