GoPro Earnings History Doesn't Deter Option Bulls

GoPro stock has moved lower the day after earnings in seven of the past eight quarters

Aug 2, 2017 at 1:44 PM
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Mobile camera maker GoPro Inc (NASDAQ:GPRO) will report earnings after the closing bell tomorrow. Options traders are pacing for a bigger-than-usual post-earnings swing for GPRO stock, which has been relatively quiet the past few weeks. However, recent options buyers have been scooping up GoPro calls at a rapid-fire rate -- suggesting they expect the stock to move higher, snapping its recent losing streak in the earnings confessional.

GPRO stock has spent the past month dawdling around the $8 level, with upside momentum capped by its 80-day moving average. This trendline, along with its 120-day cohort, has kept a lid on GoPro shares since their fall from grace in the fourth quarter of 2016. 

GoPro stock chart

And speaking of GoPro stock falls, the equity has moved lower the day after its last three earnings reports, including a one-day slide of 7.7% in April. In fact, GPRO shares have reacted positively the day after earnings just once in the past eight quarters. The stock has averaged a one-day move of 8.3% in either direction after the company's last eight earnings reports, but options traders this time are pricing in a bigger 14% move, per GPRO's at-the-money implied volatility data.

It may also be worth noting that GoPro supplier Ambarella Inc (NASDAQ:AMBA) has been a tell for GPRO's earnings reactions in the past. Ambarella reports ahead of GoPro, and whichever way AMBA stock has moved the day after earnings has been how GPRO stock moved after earnings. While this may be coincidence, it should be noted that AMBA stock fell 10.2% the day after its June earnings report.

Ambarella GoPro earnings reactions

As alluded to earlier, it seems options buyers are hoping for a breakout to the upside for GoPro stock. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day call/put volume ratio of 3.10, meaning buyers have picked up more than three GPRO calls for every put in the past two weeks. This ratio is higher than 83% of all others from the past year, pointing to a healthier-than-usual appetite for bullish bets ahead of earnings.

However, it's also worth noting that although short interest has declined the past two reporting periods, more than 27% of GoPro's float remains dedicated to short interest. At GPRO's average daily trading volume, it would take nearly 17 sessions to buy back these bearish bets. It's possible that some of the recent GPRO call buyers -- particularly at out-of-the-money strikes -- are short sellers picking up options insurance.

Either way, the recent affinity for calls is out of the norm -- at least among near-term GPRO traders. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.39 is higher than 87% of all other readings from the past 12 months, suggesting short-term options traders are still more put-heavy than usual.

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