Shares of Fitbit Inc (FIT) might have looked a bit less than fit during Wednesday’s rousing relief rally, but bullish investors looking for bargains shouldn’t be so quick to count out Fitbit stock just yet!
It has been six months since Fitbit Inc went public. And for a few fortunate insiders and major institutions, it could be time to take some profits. Fitbit stock’s lock-up period expired Dec. 15, and theoretically, roughly 170 million shares could be sold in the open market for (still) sizable profits, just in time for the holidays.
It wouldn’t be surprising if due to this influx of potential supply, that FIT stock comes come under some pressure. And this appears to have been the case Wednesday as investors cheered a very accommodative Fed and bid the market higher, yet FIT finished off -1.24% to $29.47.
I’ll say it again, though: Don’t count Fitbit stock out just yet!
The fact remains that the Fitbit brand and market share in the burgeoning health and fitness wearables arena — is currently best of breed. And with a company committed to continued growth and innovation, it’s our view that Fitbit stock is offering a gift to investors looking for value both off and on the chart.
Fitbit Stock Daily Chart
Fitbit stock subsequently went on to produce a sizable rally, and earlier this week, it established a higher-low pivot on the daily chart after reversing into a five-day pullback pattern.
Optimistically, the latest price action in Fitbit stock is believed to be the start of a new uptrend in the making.
Our view is that Fitbit stock’s multiday decline and Monday’s reversal hammer candlestick are constructive supports for higher prices.
Fitbit Stock Bull Put Spread
Even the best chart patterns can fail, only to prove a trader correct later on. So for right now, the healthiest position isn’t a straight long, but instead selling a bull put spread in Fitbit stock.
Reviewing the Fitbit options board, the Jan $27/$25 bull put spread for a credit of 70 cents looks attractive.
Breakeven is $26.30. Not only is this a discount of just more than 7% from current levels at $28.30, but the trader maintains a guaranteed stop-loss at $25, so risk is contained to $1.30, or roughly 5% of Fitbit stock’s price.
Further, because of this defined risk, if Fitbit stock goes markedly below the $25 protective put in the bull put spread and the trader still wishes to get long shares, the net cost will be the current share price of FIT plus the $1.30.
To illustrate, if Fitbit stock were at $20 over the next few weeks due to anxious insider lock-up selling; the trader would have an effective long stock cost basis of $21.40.
I don’t know about you, but that sounds pretty healthy.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. 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.