Pre-Earnings Option Bulls Line Up for Gogo Inc (GOGO)

Gogo Inc (GOGO) will report first-quarter earnings tomorrow morning

May 5, 2016 at 2:13 PM
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Gogo Inc (NASDAQ:GOGO) has seen its stock price and options volume spike ahead of tomorrow morning's earnings report. At last check, shares of the in-flight Internet provider are up 3.7% at $10.52 on heavy volume. Likewise, GOGO options are changing hands at 1.8 times the usual intraday rate -- though volume remains low on an absolute basis.

The most active option is the weekly 5/6 10.50-strike call. Traders have been buying to open the options, wagering on GOGO extend its newfound lead over this strike by tomorrow's closing bell, when the series expires.

This is just more of the same for a stock that has seen 14.61 calls bought to open for every put during the past four weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Echoing this, GOGO's Schaeffer's put/call open interest ratio (SOIR) of 0.48 checks in below 89% of comparable readings from the prior year, with short-term calls doubling puts.

It's possible call buyers are are short sellers in disguise, though. Specifically, with 34.5% of GOGO's float sold short -- an amount that would take four weeks to cover, at the stock's typical trading volumes -- short sellers may have purchased calls to hedge against an unforeseen rally in the shares.

On the other hand, the brokerage bunch is clearly on the bullish side of the fence. Two-thirds of the analysts tracking GOGO rate it a "buy" or better. Plus, the stock's average 12-month price target of $16.17 represents 54% upside to current levels.

Of course, sentiment could swing dramatically following tomorrow's earnings report. Gogo Inc (NASDAQ:GOGO) has moved an average of 6.1% in the session after its last eight quarterly events -- with four to the upside, and four to the downside. This time around, the options market is pricing in a much bolder one-day swing of 18.8%.

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