It just may come down to a key product launch for Fitbit Inc (NYSE:FIT) bulls. But with shares running well on the FIT stock chart in front of the release, a well-placed collar strategy is a smart way to position for investors with less risk and a healthy reward. Let me explain.
It’s nearly time for Fitbit’s much-anticipated Ionic smartwatch to hit the shelves of retailers or ready for purchase online. The product could also prove a last gasp effort for a pioneer within the growing, but increasingly competitive wearables technology field.
Bottom-line, and top-line for that matter, there are both lower-cost players and formidable tech giants like Apple Inc. (NASDAQ:AAPL) and Garmin Ltd. (NASDAQ:GRMN) which collectively are chipping away at Fitbit’s once-dominant market share.
The release date for Fitbit’s Ionic is slated for Oct. 1, and it goes without saying, a strong sales start would be nice. But where the rubber meets the road doesn’t truly start until sales from the all-important holiday shopping season begin to trickle in during November.
I’ll admit, for the $300 price tag, an improved GPS, HR tracking, on-board music storage, new Fitbit Coach personal training app and being waterproof to 50 meters — the Ionic sounds and does look genuinely cool. But, I’m also not a buyer of this latest wearables offering.
For what it’s worth, until there’s a smartwatch available which removes the need to still have a phone in the pocket, I’ll stick with my Garmin Fenix. Having said that, I am a buyer or at least appreciative of the Fitbit stock chart.
FIT Stock Weekly Chart
Click to Enlarge
Nearly left for dead earlier this year, FIT stock has continued to resuscitate the bull case. As of Wednesday’s close, shares had confirmed an uptrend which began in earnest in early August following Fitbit’s last earnings announcement.
The uptrend and current pattern strength are backed by a couple bullish gaps over the last five months which have also shown increasing interest from investors. Supporting this view, we can look at FIT stock’s first noticeable bullish gap in May. At that time bulls tried to break shares free of a long-standing downtrend, but eventually folded and took Fitbit to fresh lows.
And in early August and on the heels of another earnings reaction, the initial bullish reaction also eventually gave back its gains. But in this effort investors came in to support shares at the gap fill. As well, that low marked the current uptrend’s first higher low.
Lastly and in early September with shares hitting fresh four-month highs, a third bullish gap only resulted in very modest profit-taking. Here, the price action was even more bullish as the price gap never completely filled and set the stage for additional and supportive trend confirmation.
Now and with Fitbit hitting fresh highs, testing a breakdown gap from late January and stochastics pointing and signaling for higher prices out of an oversold condition — it’s our view it’s time for bears to call it quits or risk cardiac arrest.
Fitbit Bullish Collar Strategy
Reviewing Fitbit’s options board and with earnings not out until early November, the Nov $9 call/$6 put collar combination for $7.13 is favored.
What does this strategy offer FIT stock bulls? Versus owning shares outright for $6.98, the premium of 15 cents offers collar buyers guaranteed protection at $6 from the purchased put. The insurance is slightly below the recent September trend low of $6.20 alluded to above. As such and technically, it makes sense to have in place.
For investors in agreement, protection from a Fitbit collar does come with a couple costs. First, there’s the aforementioned 15-cent premium to own this strategy versus simply buying shares of FIT. Honestly, I don’t think it’s much of a concern, but it does need to be acknowledged all the same.
Furthermore, this bullish investor is short the $9 call which helped finance nearly half the cost of the put. Thus, this investor’s upside is initially capped. Bottom line though, as those two costs still amount to an expiration profit of 26% above $9 in Fitbit and the fact collar investors do maintain the ability to continue riding the FIT stock trend with a simple adjustment — the time is right for a smarter position using this collar strategy.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits and feel free to click here to learn more about how to design better positions using options!
