GoPro Inc (GPRO) Rally Attracts Last-Minute Call Buyers

GoPro Inc (GPRO) call buyers are looking to grab some quick gains before tonight's monthly options expiration

Jun 17, 2016 at 2:56 PM
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Camera maker GoPro Inc (NASDAQ:GPRO) is trading 9.1% higher today at $10.74 on upbeat comments from one J. P. Morgan Securities analyst. Specifically, he noted that lower-than-expected channel inventory "may reflect the benefits of more marketing than this time last year, and a less cluttered product lineup." Options traders have been quick to chime in, with many placing bullish eleventh-hour bets.

GPRO calls are changing hands at twice their expected intraday rate, with more than 16,000 contracts on the tape, compared to roughly 5,000 puts. Most active by far is the stock's June 10.50 call, where some traders are purchasing new positions for a volume-weighted average price (VWAP) of $0.08 apiece. To profit, buyers of this call need the shares to remain atop $10.58 (strike plus VWAP) through tonight's close, when the June series expires. Buy-to-open action has also been spotted at the in-the-money June and weekly 6/24 10-strike calls.

Call buying is nothing new in GPRO's options pits. The stock's 10-day call/put volume ratio of 3.12 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows long calls more than tripling puts over the past two weeks. This ratio also sits higher than 96% of all comparable readings in the past year.

But chances are high that some of these recent call buyers may not be true GPRO bulls. Short interest on the stock surged more than 20% during the two most recent reporting periods, and currently represents nearly one-third of GPRO's available float. At the equity's average daily volume, it would take about a week to buy back all these bearish positions. In other words, shorts may have bought GPRO calls to hedge against a surprise upside move like today's.

For options traders not looking for a hedge, GPRO's short-term options could be a good bargain. The stock's Schaeffer's Volatility Index (SVI) of 63% sits in just the 23rd percentile of its annual range, indicating near-term premium should be pricing in relatively low volatility expectations at the moment. Meanwhile, GPRO holds a Schaeffer's Volatility Scorecard (SVS) of 91 -- suggesting the market has tended to underprice the stock's options over the past year.

Technically, GPRO hasn't had much to brag about for quite some time. Even after accounting for today's gains, the shares have lost 82% of their value year-over-year, and are now staring up at potential resistance in the form of their 50-day moving average -- which turned the stock back earlier this month.

That said, if today's rally continues, a short-squeeze situation could add fuel to the stock's fire, as could more bullish attention from the brokerage crowd. Currently, 11 out of 17 analysts rate GoPro Inc (NASDAQ:GPRO) a "hold" or "strong sell."

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