GoPro Inc (GPRO) Stock Gutted? Time to Go Long!

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GoPro Inc (NASDAQ:GPRO) is a camera company, yet Wall Street experts expected so much more out the GPRO story. They even once labeled it as “a YouTube killer.” I bet Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) management wasn’t too worried then. That exuberance marked the top for GoPro stock.

GoPro Inc (GPRO) Stock Gutted? Time to Go Long!

Now, GoPro stock gets a downgrade under $9 per share. I’m sure it’s no coincidence that this coincides with the IPO of Snap Inc (NYSE:SNAP), which had a successful offering last week. Money is probably flocking out of GPRO and into SNAP stock, perhaps to recoup some losses there.

I think the two have little in common. GoPro stock is a play on a line of action cameras known for being rugged and for active outdoorsy people. We see videos of extreme base jumping pros to teens clearing a two-foot hedge in their front yard. So far, SNAP appears to capture more general scenarios.

The hate for GoPro stock should abate eventually. It still has cool products with very few high-profile direct competitors. I don’t have a lot of faith in management, but just like in the case of Twitter Inc (NYSE:TWTR), I think someone will eventually figure the stock out. But for this morning, GPRO stock is down 7.8% on a downgrade from Goldman Sachs.


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Based on that logic, I want to risk a little on a speculative trade going long GPRO stock. I could risk $8 to buy the stock, but instead I will use the options markets to risk even less. My thesis relies on GoPro stock eventually becoming attractive to old fans who revalue their re-entry levels.

I do have to note that GPRO is in danger of inviting more technical sellers if it loses these lows. So I will snipe out the entry, perhaps in two tranches.

The Bet: Sell the GPRO Jan 2018 $5/$3 credit put spread. This is a bullish trade for which I collect 50 cents to open per contract. If successful, this trade would yield over 30% on money risked. I need GPRO stock to stay above my sold spread to win.

Yes, it is a gamble to try and catch falling knives, especially one like GPRO. But I need to add a few speculative plays to my portfolio, and this one qualifies. Again, an underlying assumption is that GoPro will eventually survive. But I don’t need it to thrive to profit.

Usually, I like to balance my risk by selling upside risk. In this case, however, I won’t. GoPro stock has fallen too far, too fast, and I would be selling risk at a severe discount. If GPRO bounced hard, I would face self-inflicted risk against my own thesis.

I could juice my bet by buying upside calls, but I will wait out a few more trading hours to flush out an interim bottom. I don’t want to turn this trade into an investment yet, however, since I’ve already said that I don’t have much faith in GPRO management’s ability.

I am not required to hold my options trade option through their expiration. I can close them at any time for partial gains or losses.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/go-long-gpro-stock-on-the-downgrade/.

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