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Call Buyers Take Over Gogo Inc (GOGO) Options Pits

A Gogo Inc trader is either betting on, or hedging against, a huge rally

by 7/17/2014 2:47 PM
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Gogo Inc (NASDAQ:GOGO) hasn't done much on the charts today -- fractionally lower at $16.08 -- but its options pits are busy. In fact, calls are changing hands at six times the usual intraday clip. Short-term contracts are in high demand, too, as the stock's 30-day at-the-money implied volatility has shot 9.6% higher to 83.2%.

GOGO's most active strike is its soon-to-be front-month August 22 call, where roughly 10,000 contracts have traded -- handily outstripping open interest. The majority of these calls crossed as an 8,010-contract sweep, at the ask price of $0.25 apiece. In other words, the lot was likely bought to open for $200,250 (number of contracts * premium paid * 100 shares per contract) -- which represents the maximum risk on the trade, should GOGO be sitting below the strike when August options expiration rolls around. By contrast, gains are theoretically unlimited north of the at-expiration breakeven mark of $22.25 (strike plus premium paid).

Another strategy may be afoot here, however. Given the deep out-of-the-money status of the calls, GOGO's high level of short interest (i.e., nearly one-third of its float), and the stock's year-to-date deficit of 35.2%, it's possible some of the call buyers are short sellers looking for a near-term hedge -- especially ahead of earnings.

Speaking of which, Gogo Inc (NASDAQ:GOGO) is tentatively scheduled to report second-quarter results during the week of Aug. 4. The Street is projecting a per-share loss of 23 cents from the in-flight Internet provider -- a vast improvement over last year's 85-cents-per-share loss.


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