Fitbit Inc (FIT) Option Bulls Dismiss Dismal Earnings History

Fitbit Inc (NYSE:FIT) will unveil its quarterly earnings report after Monday's close

by Karee Venema

Published on Feb 19, 2016 at 2:24 PM

Fitbit Inc (NYSE:FIT) has only reported earnings two times as a publicly traded company, with the shares averaging a single-session post-earnings move of 11.1%. The options market is projecting a bigger 23% swing. Meanwhile, although each one of FIT's quarterly earnings reports was poorly received, option traders have been lining up on the bullish side of the fence in the weeks leading up to Monday night's results.

Specifically, speculative traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 2.34 calls for each put over the past 10 sessions. Echoing this is FIT's Schaeffer's put/call open interest ratio (SOIR) of 0.46, which indicates that call open interest more than doubles put open interest among options expiring in three months or less.

Diving deeper, the stock's weekly 2/26 15-strike call has seen the largest increase in open interest over the past two weeks, with 4,042 contracts added. If -- as has been the trend -- these in-the-money calls were bought to open, the goal is for FIT to extend its lead over the $15 mark through next Friday's close, when the weekly options expire.

With a hefty 15% of FIT's float sold short, it's possible that some of the recent buy-to-open call volume -- specifically, at out-of-the-money strikes -- is a result of shorts hedging their bearish bets. Whatever the reason, the equity's near-term options are pricing in extremely high volatility expectations at the moment. In fact, FIT's Schaeffer's Volatility Index (SVI) of 119% and its 30-day at-the-money implied volatility of 117.4% sit just 5 percentage points from a 52-week peak.

Elsewhere, the brokerage bunch has been slowly changing their optimistic tune on FIT, given its 47% year-to-date deficit to churn near $15.80. Just this morning, BofA-Merrill Lynch lowered its price target on the stock to $31 from $36 (although this is still more than double current trading levels).

However, with three-quarters of covering analysts maintaining a "buy" or better rating -- and the average 12-month price target perched at a lofty $33.84 -- there's plenty of room for more bearish brokerage notes, should shares of Fitbit Inc (NYSE:FIT) stage another post-earnings retreat.

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