After enjoying a run-up of nearly 50% between March and mid-June, shares of wearable/mountable HD camera manufacturer GoPro (GPRO) are in trouble.
Since peaking at $61.19 on June 8, GPRO stock has shed roughly 18%. With potential bullish drivers looking thin until the company releases its second-quarter earnings report on July 30, GPRO traders have their work cut out for them.
Sticking with GPRO stock’s technicals for a moment, the shares have breached several key short-term moving averages, including their 50-day trendline in the $53 area. Additionally, GPRO stock price action during the past couple of trading days looks eerily similar GPRO’s breakdown below its 200-day trendline back in mid-June, with the shares testing and failing to overcome overhead resistance.
The next level of support for GPRO stock is the $50 region. A breach here would be bad news for GPRO stockholders.
Outside GPRO stock price action, sentiment has grown mixed on the security. Analysts remain largely bullish when it comes to GPRO’s prospects. According to data from Zacks, GPRO stock has attracted nine “buy” ratings, five “holds” and no “sell” ratings. Additionally, the 12-month price target of $66.50 represents a roughly 27% premium to the stock’s current trading range.
While this bullish sentiment was fine during GPRO’s run higher, it could be a liability if the shares continue to falter as they have during the past several weeks. Specifically, downgrades or price-target cuts could be rather damaging, and there is ample room for both.
Elsewhere, short sellers remain largely confident that GPRO is set for additional losses. While short interest declined by about 12% during the most recent reporting period, 10 million shares remain sold short. With the weak hands now shaken out after GPRO’s recent peak, look for die-hard short sellers to potentially increase their positions following the recent breach of support at GPRO’s 50-day moving average.
Click to Enlarge On the options front, puts have taken hold of GPRO’s open interest configuration. Currently, the July/August put/call open interest ratio for GPRO rests at 0.91, with puts in near parity with their call counterparts. Furthermore, this ratio rises to a reading of 1.05 when we zoom out to look at just the August series — i.e. options that will be most affected by GoPro’s second-quarter earnings report.
Overall, July implieds are currently pricing in a potential move of nearly 8% for GPRO. This places the upper bound at $56.15, while a the lower bound lies at $47.85. Since both levels put GPRO stock outside of significant support and resistance levels, there is the potential for a greater-than-expected move.
2 Trades for GPRO Stock
If you are looking to trade options ahead of GPRO earnings, you might want to wait until the earnings date moves a bit closer before jumping in. Expectations can fluctuate greatly in the next two weeks, and implieds will change as a result. As such, today’s trading ideas is focused on GPRO stock price action before the company’s quarterly report, and will focus on the July option series.
Put Spread: With little in the way of bullish drivers, and selling pressure dominating GPRO stock over the short term, traders might want to consider a Jul $48.50/$50 bear put spread. At last check, this spread was offered at 55 cents, or $55 per pair of contracts. Breakeven lies at $49.45, while a maximum profit of 95 cents, or $95 per pair of contracts, is possible if GPRO closes at or below $48.50 when July options expire.
Call Spread: On the other hand, there is the possibility that broad market events (such as an agreeable solution to the Greek debt crisis) could lift stocks across the board. Furthermore, GPRO is in a bit of an oversold situation at the moment. Those traders expecting a rebound in GPRO stock in the next couple of weeks might want to consider a Jul $52/$55 bull call spread.
At last check, this spread was offered at $1.10, or $110 per pair of contracts. Breakeven lies at $54.10, while a maximum profit of $1.90, or $190 per pair of contracts, is possible if GPRO closes at or above $55 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
