Are GoPro Inc, Ambarella Inc Breakouts Shaking the Shorts?

GoPro Inc (GPRO) and Ambarella Inc (AMBA) are rallying, possibly on short-covering activity

by Alex Eppstein

Published on Nov 9, 2015 at 2:22 PM

GoPro Inc (NASDAQ:GPRO) and its chip supplier Ambarella Inc (NASDAQ:AMBA) are bucking the broad-market trend lower, potentially supported by short-covering activity. Specifically, GPRO was last seen 3.4% higher at $25.99, while AMBA is up an even more impressive 4.1% at $56.53, at last check. Here's a closer look at what's happening on the technical and sentiment fronts for this pair of stocks.

Despite GPRO's intraday pop, the fact remains the shares have been dreadful -- shedding 59% year-to-date, and still struggling to muscle atop their descending 10-day moving average. Over the last week, short-term traders have been selling to open calls. Specifically, the stock's weekly 11/13 26-strike call has seen the biggest change in open interest during the past five sessions -- per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- and over 1,000 short positions have been initiated here. In so doing, these traders are counting on the shares to end the week -- when the series expires -- south of $26.

As alluded to earlier, short sellers have also aggressively bet against GoPro Inc. Specifically, short interest spiked over 41% during the latest reporting period, and now over half of the stock's total float is sold short.

It's a similar technical story for AMBA. While the shares have advanced close to 11.5% on the year, they've been in full-blown sell-off mode since hitting a record high of $129.19 in late July. In fact, during the past 60 sessions, the stock has underperformed the broader S&P 500 Index (SPX) by a mind-bending 50 percentage points.

Shorts have been getting in on the action. During the last two reporting periods, short interest on AMBA jumped 15.7%, and now represents 44.6% of its total float -- or about seven days' worth of trading, at typical volumes.

During the last week, some short-term speculators have been banking on a rebound north of the round $60 area by week's end. Specifically, Ambarella Inc's weekly 11/13 60-strike call is among the equity's options experiencing the most sizable upticks in open interest, looking back five days. A number of these have been bought to open, according to data across the major exchanges. However, in order for the call to expire in the money by Friday's close, AMBA will need to take out its 40-day trendline -- currently located at $58.47 -- which hasn't happened since early August.

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