GoPro, Inc. (GPRO) Option Trader Predicts a Pop

Breaking down a call spread on GoPro Inc (GPRO)

by Andrea Kramer

Published on Jan 27, 2015 at 2:02 PM
Updated on Apr 20, 2015 at 5:32 PM

Portable camera maker GoPro Inc (NASDAQ:GPRO) is flying in the face of broad-market headwinds, up 2.8% at $51.86. What's more, it looks like one options trader is cautiously optimistic on the equity's short-term prospects, implementing a two-pronged options play.

Specifically, it appears the speculator bought to open 2,000 weekly 2/13 52.50-strike calls for $2.90 apiece, and then helped fund the position -- and lower her maximum risk -- by simultaneously selling to open an equal amount of weekly 2/13 60-strike calls at $0.90 apiece. By constructing the bull call spread for $2 per pair of contracts, the trader will profit if GPRO muscles north of $54.50 (bought strike plus net debit) by the close on Friday, Feb. 13 (when the series expires), but her reward is limited to $5.50 (difference between strikes, less net debit) per pair of contracts, no matter how high GPRO should soar north of $60.

Had the trader simply bought to open the 52.50-strike calls, her potential reward would be theoretically unlimited. However, at-expiration breakeven on the trade would be higher, at $55.40 (strike plus premium paid), and she'd lose the entire $2.90 -- as opposed to $2 with the spread -- if GPRO remained south of the strike through the options' lifetime.

With GoPro Inc (NASDAQ:GPRO) set to report earnings after the close on Thursday, Feb. 5, the strategist could be gambling on a post-earnings pop for the shares, which enjoyed a single-session gain of 13% after the firm's late-October report. The sold calls were likely added to the mix in order to combat rising short-term option prices, as the stock's Schaeffer's Volatility Index (SVI) has risen to 83% -- in the 61st percentile of its range -- compared to an all-time low of 54% on Jan. 7.


A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!


  
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.
Wall Street Reclaims Two Key Trendlines This Week
U.S.-China tensions and dire economic data still weigh, though
Dell Stock Jumps on Upbeat First Quarter
DELL announced an upbeat first-quarter report
The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.