GoPro Inc (GPRO) Shares, Options Heat Up on Earnings Eve

GoPro Inc (GPRO) is rallying ahead of tomorrow's earnings report, and option traders are eyeing round-number calls

Jul 20, 2015 at 11:43 AM
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Investors are circling mobile camera bigwig GoPro Inc (NASDAQ:GPRO) ahead of the company's turn in the earnings spotlight tomorrow night, and amid reports that GoPro cameras are the latest in vehicle dashboard accessories. The shares are up 5.2% at $59.61, volume is running high, and a close north of $60 would be a first since mid-January. Meanwhile, it should be noted that $60.85 translates into a 38.2% Fibonacci correction from GPRO's all-time high of $98.47.


What's more, option traders are rolling the dice on more upside for GPRO, with intraday call volume running at seven times the average clip, and outpacing put volume by a margin of 2-to-1.

The stock's 30-day at-the-money (ATM) implied volatility has popped 18.3% to 64.9%, reflecting the growing expectations for a big move after earnings. Specifically, GPRO's short-term ATM straddle indicates the options market is pricing in a 13.1% swing in either direction. Over the past four quarters, GPRO has averaged a move of 13.4% in the session after the company reported earnings. 

Taking a step back, during the past two weeks, GPRO has seen roughly 151,000 calls change hands, compared to 85,000 puts. More than half of those calls were out of the money (OOTM), according to Trade-Alert, and more than one-third traded on the ask side, hinting at buyer-driven action.

The weekly 7/24 60-strike call -- which was OOTM last week, when GPRO was trading near $56 -- saw the biggest open interest increase during the past 10 sessions, with roughly 2,400 contracts added. Meanwhile, the newly front-month August 60 call saw more than 1,900 contracts initiated. By purchasing the calls to open, the buyers expect GPRO to surmount $60 within the options' lifetime. Buyers of the weekly calls are counting on that move to come to fruition before this Friday's close, while buyers of the monthly calls have until Friday, Aug. 21, for the jump to play out.

In light of GPRO's surge this morning, delta on the weekly 7/24 60-strike call has jumped to 0.49 from 0.34 at Friday's close, demonstrating the growing odds of an in-the-money finish. The call is currently trading at a volume-weighted average price (VWAP) of $3.15, meaning buyers today will profit if GPRO topples $63.15 (strike plus VWAP) by the end of the week.

Likewise, delta on the August 60 call has jumped to 0.51 from 0.39. Due to its added time value, the going VWAP on the call is $3.84, making at-expiration breakeven $63.84. 

Finally, GoPro Inc's (NASDAQ:GPRO) Schaeffer's Volatility Scorecard (SVS) sits at a healthy 93. In simple terms, now is an opportune time to gamble with GPRO's options, as the stock has tended to make outsized moves on the charts over the past year, relative to what the options market has priced in.


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