Fitbit Inc (NYSE:FIT) stock has been anything but “charging” forward in value of late. Now though, the Fitbit stock price chart suggests the time is now for investors to consider wearing a bull call spread.
It’s been a tough few weeks for Fitbit stock. Shares are off nearly 20% since Pacific Crest downgraded shares to “underperform” following weak retail store channel checks of its latest fitness and health wearable Charge 2.
Compared to its strong Alta and Blaze product releases earlier this year, the whiff of weaker sales for the Charge 2 is drawing concern from investors. And there are real risks for FIT.
The crowded wearables space has always formidable competitors like Apple Inc. (NASDAQ:AAPL), Garmin Ltd. (NASDAQ:GRMN), Nike Inc (NYSE:NKE) and Under Armour Inc (NYSE:UA), which could steal market share from Fitbit.
And it’s no secret other investors are betting on Fitbit stock blowing up. On top of FIT’s selloff this past month, shares have also attracted bulging short interest of nearly 42%.
Nevertheless, there is still more to be optimistic about regarding FIT than not.
FIT remains the leader in the wearables market. The company also enjoys a first-movers advantage in the Corporate Wellness arena, maintains powerful brand positioning and happens to be on sale with a below-market forward price multiple of 9.
Sure, Fitbit stock could be doomed to lose its edge like Blackberry Ltd (NASDAQ:BBRY) did in the smartphone market. But given an attractive entry point on the FIT stock price chart and a market cap laughably less than BBRY, it’s a good time to consider buying shares.
Fitbit Stock Daily Chart
Click to Enlarge Technically, FIT is in solid position for bullish investors to pick up the name at a technical discount, albeit at critical support in this strategist’s opinion.
Immediately following its early May earnings report, shares of FIT went on to establish a bullish inverse head and shoulders bottoming pattern. That’s the good news.
The bad news is Fitbit’s breakout attempt of its pattern neckline and 200-day simple moving average failed. It does appear that the proverbial ball, however, is back in the hands of bulls.
On the heels of a rather swift selloff from the breakout attempt, bulls have put together a successful test of support from the earnings reaction low of FIT’s left shoulder. In conjunction with an oversold stochastic, it makes sense to go long Fitbit stock while respecting this week’s low.
FIT Bull Call Spread
Trading for around 65 cents on the bid and Fitbit stock at $14.06 the position limits one’s loss to the debit paid while reducing volatility and time decay risks.
An upside reaction in FIT is required to breakeven at $14.65 or capture a max return of $1.30 above $16. There is however an earnings announcement on November 2 to act as a catalyst.
As well, given our technical thesis for entering Fitbit is tied to requiring a close-by low to hold, positioning for a bit of upside this makes sense technically, rather than other credit spread positions trying to capture income below current prices in FIT shares.
Investment accounts under Christopher Tyler’s management currently own positions in Under Armour (UA) and its derivatives. Mr. Tyler also proudly wears a Garmin Fenix 2 watch. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
