Pessimism Heavy Ahead of GoPro Earnings

GPRO options are pricing in double the usual daily post-earnings price move

Oct 31, 2018 at 10:56 AM
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Mobile camera firm GoPro Inc (NASDAQ:GPRO) is set to report third-quarter earnings after the market closes this Thursday, Nov. 1. Ahead of the event, analysts are expecting GPRO to report a loss of 6 cents per share on $272.3 million in revenue -- down from its year-ago profit of 15 cents per share on $329.8 million in revenue. Meanwhile, options traders are pricing in a single-day stock move that's roughly double the norm.

Over the last eight quarters, Trade-Alert data shows GPRO making an average move of 10.6% in the trading session after its earnings are released, regardless of direction. That includes the equity's 10.2% slide last November, after its year-ago third-quarter figures hit Wall Street. This time around, the options market is pricing in a 20.9% post-earnings move for GPRO, based on at-the-money implied volatility (IV).

Options traders are leaning toward GoPro puts over calls, suggesting a bearish bias among speculative players. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at a steep 2.18, which arrives in the 95th percentile of its annual range. In other words, puts more than double calls among options set to expire within three months -- and the current put skew is greater than all but 5% of other such readings from the past year.

The pessimistic outlook on GPRO extends beyond the options pits. Short interest on the stock surged by 33.6% in the past two reporting periods, and now represents a robust 30.2% of its float. At the equity's average daily trading volume, it would take more than six sessions for all of these shorted shares to be repurchased.

Elsewhere, analysts have handed out just one "buy" rating on GPRO, compared to five "holds" and two "sells." Based on this skeptical configuration, it seems safe to say the brokerage community isn't expecting much more upside out of the shares.

That said, while some of the broad-market equity benchmarks have lately sliced through their respective 200-day moving averages, GPRO is fresh off a successful test of its own. This trendline served as resistance in July and August, but the shares have now bounced from here a couple of times recently.

In today's trading, GPRO is up more than 2% at $6.50, and on pace to close back above support at its 100-day moving average -- a formerly steadfast foothold that gave way early this month as broad-market volatility ramped up. Based on GPRO's current price, traders are expecting the post-earnings price action later this week to carry the stock as far north as $7.88 -- a new year-to-date high -- or as far south as $5.15, where it hasn't traded since May.

gpro 200-day bounce 1031


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