Option Bears Blaze a Path Toward GoPro Inc (GPRO)

GoPro Inc (NASDAQ:GPRO) is rallying today on no apparent news, and puts are popular

by Karee Venema

Published on Jul 11, 2016 at 2:38 PM
Updated on Jun 24, 2020 at 10:16 AM

GoPro Inc (NASDAQ:GPRO) is soaring today, and while there seems to be no specific news moving the shares, some are speculating the upside may be a result of short sellers covering their bearish bets. Regardless, GPRO is up 12% at $12.29, but options traders don't seem convinced the stock will maintain this momentum.

By the numbers, around 26,000 put options and 19,000 call options have changed hands so far -- five times the total expected intraday amount. Most active is GPRO's August 12 put, where it looks as if new positions are being purchased. If this is indeed the case, the goal is for the equity to retreat back below the strike by back-month options expiration at the close on Friday, Aug. 19.

While GPRO put players have been increasing their presence of late, the broader trend has been toward long calls. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, the stock has racked up a 10-day call/put volume ratio of 2.30 -- in the 73rd percentile of its annual range.

Mirroring this trend is GPRO's Schaeffer's put/call open interest ratio (SOIR) of 0.62. This not only indicates that call open interest outweighs put open interest among options with a shelf-life of three months or less, but it ranks lower than 82% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward GPRO.

As indicated, though, GPRO is a heavily shorted stock. Short interest rose 6.6% in the last two reporting periods, and now accounts for 31.8% of the equity's available float -- or six times GPRO's average daily pace of trading. As such, it's possible some of the recent call buying could be a result of short sellers hedging their bearish bets against any upside risk.

Whatever the case, now appears to be an opportune time to buy premium on GPRO's near-term options. For one, the equity's Schaeffer's Volatility Index (SVI) of 71% rests in the 30th annual percentile, meaning premium on its short-term options is currently pricing in low volatility expectations. Plus, GPRO's Schaeffer's Volatility Scorecard (SVS) of 85 suggests the options market has tended to underprice the security's ability to make big moves over the past 12 months.

Technically, GoPro Inc (NASDAQ:GPRO) has struggled on the charts for some time, down nearly 77% year-over-year. More recently, the stock has rebounded 40.5% off its May 19 all-time low of $8.62, and today's surge has GPRO breaking through previous resistance near $11.20.

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