Shares of GoPro Inc (NASDAQ:GPRO) are trying once more to rise from the mat. Time will tell if this attempt succeeds where so many others have failed, but so far, GoPro stock is off to a rousing start.
Following its harrowing descent, GoPro stock has spent 2016 in bottoming mode. And while sideways action is far from inspiring, it’s a heck of a lot better than plumbing the depths day after day like GPRO used to.
The neutral movement has been sufficient in leveling out GoPro’s short and intermediate trend. Further dithering or, better yet, bullish action is needed before the 200-day moving average can flatten out. That’ll go a long way in healing the technical damage dealt to GPRO stock over the last few years.
As of this morning, GoPro stock had climbed 22% for the week. Impressive, to say the least. Shares are fast approaching the $14.50 resistance zone, which has kept a lid on prices all year long. I suspect next week’s (July 21) earnings release will be the catalyst for whether GPRO’s breakout bid succeeds.
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Given how much the stock has risen already this week traders should be cautious in chasing here. Fortunately, we can use GPRO options to build a trade that profits as long as shares don’t drop more than 15% to 20% over the next month.
Capture Profits With Naked Puts on GoPro Stock
Because of its volatile nature, GoPro options offer juicy premiums for sellers. That coupled with its low price tag make it a prime candidate for put selling. The naked put is a high probability strategy, profiting as long as the stock doesn’t fall too far from its current perch. And if it does, you’re simply promising to buy shares (100 for each contract sold) at the strike price.
If you think GPRO’s rally is the real deal, sell the Aug $11 puts for 60 cents or better. The profit is limited to the initial 60 cents and will be captured if shares of GoPro stock sit above $11 at expiration.
If the stock tumbles following earnings, you will be obligated to buy 100 shares at $11. However, since you received 60 cents for your troubles, your actual cost basis will be $10.40. If that sounds attractive, consider this trade a potential win-win regardless of the outcome.
This morning’s rally is fading a bit at the time of this writing, so consider waiting for a slight pullback to short the put.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
