Poor earnings guidance. A major product recall. Shareholder lawsuits. It seems that everything that can go wrong for GoPro Inc (NASDAQ:GPRO) has gone wrong in the past month. But, while GoPro stock has taken a severe beating in the past two months, that’s no reason GPRO options traders can’t find a way to rake in a profit on the beleaguered shares. In fact, it may even pay to go bullish.
Yes, GoPro stock looks ugly right now. The shares are trading at their lowest point since July — in single-digit territory. GPRO has found pressure at both its 10-day and 20-day moving averages, and is trading well south of its once-supportive 50-day trendline.
However, the shares appear to have found some stability just below the $10 region, with pullbacks to the $9.50 area attracting bargain hunters. It’s fair to say that the worst has been factored into GoPro stock, and that any positive developments should have a buoying effect on the shares.
Elsewhere, GoPro’s sentiment backdrop has definitely seen better days. The 12-month consensus price target rests just overhead at $10.19, while Zacks reports that 14 of the 16 analysts following the shares rate them a “hold” or worse.
That said, some analysts are beginning to see the post-earnings selloff as overdone. In fact, Vetr recently upgraded GoPro stock to “strong buy” with a price target of $12.51.
While I wouldn’t expect a flood of upgrades anytime soon, the potential for more brokerage firms to follow Vetr’s lead is there — especially if GoPro can turn in solid holiday sales figures.
Even short sellers are beginning to ease up on GoPro stock. During the most recent reporting period, the number of GPRO shares sold short declined by 3% — the second straight weekly decline — to about 25 million shares, or 35% of the stock’s total float. Continued profit taking from the short-selling crowd could create additional buying pressure for GoPro stock.
Finally, options traders are also heavily bearish on GoPro stock. At last check, the December put/call open interest ratio had risen to a reading of 1.67 from November’s perch at 1.51. Puts clearly outnumber calls among near-term options by a wide margin, but most of those are focused at the $10 strike in the December series. In other words, there are few (relatively speaking) options traders betting on GPRO to fall much further.
Click to Enlarge Overall, Dec 16 series implieds are once again pricing in a potential post-earnings move of about 13%. This places the upper bound at $11.31, while the lower bound lies at $8.69. The $10 region has switched from support to resistance for GPRO, and a reclamation of this psychological level could have a significant bullish impact on the shares.
That said, a test and rejection at $10 could result in a confirmation of the downtrend, thus sending GoPro even lower.
2 Trades for GoPro Stock
Call Spread: Sentiment watchers know that the rise in negativity on GoPro stock was all but a given following the company’s recent woes. The result, however, is that any positive news (holiday sales, etc.) could have an exaggerated effect on GRPO stock.
Those traders looking to take a risk on a GPRO rebound might want to consider a December $10/$11 bull call spread. At last check, this spread was offered at 36 cents, or $36 per pair of contracts. Breakeven lies at $10.36, while a maximum profit of 64 cents, or $64 per pair of contracts, is possible if GoPro stock closes at or above $11 when December options expire.
Put Spread: Traders wanting to follow the bearish crowd, meanwhile, should consider a December $8.50/$9.50 bear put spread. At last check, this spread was offered at 30 cents, or $30 per pair of contracts.
Breakeven lies at $9.20, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if GoPro stock closes at or below $8.50 when December options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
