Can what was once a hot item on Wall Street find favor for a second time? If it’s one-time growth darlings Fitbit (NYSE:FIT) and GoPro (NASDAQ:GPRO), the charts are saying “yes!” But for like-minded bullish investors looking to avoid any nasty repeats; a pair of options strategies are the smarter way to position long in FIT and GPRO stock. Let me explain
The Time Is Now: FIT Stock
It has been three years since FIT stock debuted amidst much fanfare and Wall Street banging the drums that the next, next, big, big thing had arrived for investors. And nearly three years later, shares of the connected wearables manufacturer have plummeted from a high of $51.90 to today’s $6.83. Ouch!
The good news is the decline of 87% has been putting in some quality time, pardon the pun, on the FIT stock price chart, and shares look poised to rally higher.
Over the last year and a half, Fitbit has established a broadening bottom pattern as shown on the provided weekly view below. Also in plain sight, FIT stock recently encountered a bit of resistance from the formation.
But with shares having constructively pulled back over the last two weeks, this could be a case where resistance is meant to be overcome.
Now — with Tuesday’s daily chart confirmation of Monday’s pivot low and FIT oversold on the daily time-frame — it’s looking like an opportune time to get long for a potential breakout with a reduced and limited-risk position using Fitbit options.
FIT Stock Options Strategy
Reviewing the options market for FIT stock and given the view shares are bottoming in front of a major pattern breakout, I like approaching FIT stock using a long, out-of-the-money call purchase. One contract which has my eye is the Aug $8 call for 33 cents with shares of Fitbit at $6.83.
This particular call contract has a lot going for it. First, risk is contained to about 5% of the exposure associated with buying FIT stock. While we may not like to think about it, that type of risk control could come in handy. Secondly, with a potential earnings catalyst in July, a combination of a favorable reaction and pattern breakout above the recent high of $7.79 could power some real value into the August call and offer a very favorable adjustment opportunity.
Flying Higher: GPRO Stock
When GPRO stock debuted four years ago, the action camera and technology outfit was picture perfect with Wall Street, and investors were all smiles … for a while, at least. But since the fall of 2014, it has been a volatile and painful ride lower for GPRO shareholders.
But much like Fitbit, GPRO’s wipeout of shareholder value in excess of 93% has put together a light at the end of the tunnel. Technically, bullish investors willing to enter GoPro’s surf have a favorable three-month long uptrend that’s developed off the stock’s all-time-low of $4.56.
The bigger weekly view does show plenty of potential resistance above it. But it’s also true that time does heal many investment wounds. Further, with GPRO stock basing over the last couple of years with barely a nod of recognition from Wall Street, these days GoPro does sport the type of qualities of a contrarian trade which could turn in big profits for bullish investors.
GPRO Stock Options Play
For like-minded traders interested in riding GoPro’s budding uptrend, this is also a situation where I like a straight-up, long call purchase. In the event GPRO stock fails to improve on its current situation, wanting to hold stock or increase my exposure as the technical picture deteriorates, sounds like a bad idea. Bottom-line, stocks are cyclical, but not all survive to make it to the next upswing.
One favored call right now for purchasing is the Aug $7 call. With GPRO at $6.60 this contract is priced for 43 cents, or roughly 7% of the share price while being only slightly out-of-the-money.
And similar to FIT, with an embedded earnings event in the contract, safely riding a bigger uptrend sounds like a pretty smart way to position in GoPro.
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.
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