Catching this GoPro Inc (NASDAQ:GPRO) falling knife has been a saga that would have made a nice extreme video itself. I remember days when GPRO was pushing $90 per share and experts were touting it as the Youtube killer. Those days are long gone and now its fans would pop the bubbly if it cracks into double digits again.
I shorted at its highs based on the premise that it’s just a camera company. Period. It helped me that management had a few flubs with inventory and market timing, which brought about several disappointing headlines that chiseled away at the Wall Street hopium statue.
Fundamentally, I can’t value it since there is none to measure. So I revert to expectations and those seem to be literally on hold. Most analysts have it as a hold while waiting for a miracle headline perhaps. This kind of expert guidance is useless to most retail investors.
Technically, there are clues to trader focus. I see that $9 per share is the contention level since November of 2016. Back in March I shared a bullish write up that actually delivered free profits even though the price action was not bullish.
Today I want to repeat the process with a lottery style bet on the long-term viability of this camera company. After all we recently had a rekindle of interest in cameras by the initial public offering of Snap Inc (NYSE:SNAP). So maybe GPRO management could surprise us with a competing product to SNAP’s spectacles or maybe the company gets bought out. Either case, I want to risk some speculative money into the company’s long term viability.
The Gamble: Sell Jan 2018 $7 puts naked and collect $1.10 to open. This basically states that I am betting GoPro stock holds its lows. To guard against the possible negative reaction to earnings tonight, I will also buy May $7 puts for pennies just so I can sleep well through mid-May knowing my worst case scenario is covered.
Selling naked puts is dangerous since they commit me to buying the shares at the strike sold. So I only do this if I am willing and able to own the shares without complications. Otherwise I should change this trade into a credit spread of sorts to limit the maximum dollars at risk.
Learn options as easy as 1-2-3 in a personal 1on1 webinar here. 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.
