Since rocketing 300% higher following it’s highly anticipated IPO in June, GoPro (GPRO) has settled into a holding pattern.
Of course, after such a meteoric rise in GoPro stock, a little consolidation is more than a little justified. Even the hottest momentum stocks need a breather from time to time. The silver lining in the ongoing chop-fest is that once GPRO is ready to continue trending, it will have a nice little base to launch higher from.
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In sizing up the recent range, it’s apparent we have a symmetrical triangle in the making. As the name suggests, this chart pattern is formed by a series of lower pivot highs and higher pivot lows. The converging trendlines are shown in the accompanying chart.
As GoPro stock approaches the apex of this triangle, a breakout becomes increasingly likely. Think of the ongoing compression in volatility as a coiled spring just waiting to release its pent-up energy.
If the longer-term trend in GPRO is any indication, the eventual breakout should be to the upside.
How to Trade GoPro Stock
The options market provides a number of ways to score a big payday if GPRO climbs higher. One of the cheaper plays is purchasing the Jan $80/$90 bull call spread on GPRO for $2.60 or better. The call spread consists of buying to open the Jan $80 call and selling to open the Jan $90 call. By using January options, we give the stock a couple of months to stage the breakout and hopefully retest its all-time highs near $98.
The max loss in the spread is limited to the initial $2.60 debit paid at trade entry and will be incurred if GoPro stock sits below $80 at Jan expiration. The max reward is limited to the distance between strikes minus the net debit, or $7.35. To capture this massive 282% return, GPRO would need to rise above $90 by Jan expiration — a feat that seems inevitable if we do indeed see an upside breakout to the triangle.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
