After a successful pre-earnings trade last month, I’m back with another look at wearable fitness tech specialist Fitbit Inc (NYSE:FIT).
Last month, I suggested getting in on a FIT August $14/$15 bull call spread ahead of earnings — a trade that, if you were able to get in near the suggested ask price of 31 cents, or $31 per contract, resulted in a 120% profit.
But while Fitbit stock soared following second-quarter earnings, the shares have been quite volatile since, and a change in strategy for options traders may be warranted.
For starters, Fitbit stock’s post-earnings rally was halted firmly by overhead resistance at $16. The shares have since bounced around near support at $14.50-$15 with a pair of half-hearted attempts to challenge $16.
Following a 2% plunge yesterday, FIT is now trading back below $15, as well as both its 10-day and 20-day moving averages — suggesting short-term technical weakness.
The sentiment backdrop has shifted significantly toward the bullish end of the spectrum since Fitbit’s quarterly report. For instance, 12 of the 22 analysts following Fitbit stock now rate it a “buy” or better, according to Zacks data.
Additionally, the 12-month consensus price target of $21.38 represents a premium of more than 44% to the Fitbit stock’s current trading range.
Elsewhere, short sellers have begun to reassert their positions on Fitbit stock. In the reporting period heading into last month’s earnings report, short interest fell by 6% on FIT stock. That trend has since shifted, with the number of FIT shares sold short rising 3% to roughly 51 million as of the most recent period.
By comparison, only about 33.8 million shares of Fitbit stock were sold short ahead of earnings. Continued short selling could apply more downward pressure to FIT.
Finally, while options traders were bullish on Fitbit stock heading into last month’s earnings report, they have since more than doubled down on this euphoria. Currently, the September/October put/call open interest ratio for FIT arrives at 0.37, with calls nearly tripling puts among options set to expire within the next two months.
As for implieds, volatility is still a significant factor for Fitbit stock options traders. At last check, Sept 16 series implieds were pricing in a potential move of about nearly 6% for Fitbit stock. This places the upper bound at about $16.02, while the lower bound lies at near $14.20 from yesterday’s close.
2 Trades for Fitbit Stock
Put Spread: Weak price action and mounting short interest doesn’t bode well for Fitbit stock’s short-term prospects. For those traders looking to fade FIT at this point, a Sept $14/$15 bear put spread offers plenty of potential. At last check, this spread was offered at 38 cents, or $38 per pair of contracts.
Breakeven lies at $14.62, while a maximum profit of 62 cents, or $62 per pair of contracts, is possible if Fitbit closes at or below $14 when September options expire.
Call Spread: For those traders unwilling to give up on Fitbit stock, there is an easy way to side with the bulls. Currently, the most popular September series strikes are the $15 and $16 calls, with OI of more than 13,000 contracts each.
By following the lead of the options crowd, you’d end up with a September $15/$16 bull call spread. At last check, this spread was offered at 25 cents, or $25 per pair of contracts. Breakeven lies at $15.25, while a maximum profit of 75 cents, or $75 per pair of contracts, is possible if Fitbit stock closes at or above $16 when September options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
