Pre-Earnings Options Traders Turn Bearish On GoPro Inc (GPRO)

GoPro Inc (GPRO) options traders are uncharacteristically bearish today, just ahead of the firm's earnings report

by Alex Eppstein

Published on Jul 25, 2016 at 12:28 PM

GoPro Inc (NASDAQ:GPRO) options are running at a rapid pace, as the stock has jumped 2.7% to trade at $11.38. Curiously, put options are at nearly two times the volume expected at this point in the session, ahead of Wednesday night's earnings report. Below, we'll take a closer look at the intraday options action, as well as expectations heading into GPRO earnings.

Diving right in, the most active strike is the in-the-money August 11.50 put, with north of 3,800 contracts on the tape. According to data at the International Securities Exchange (ISE), a good chunk of these options have been bought to open. In other words, traders foresee GPRO reversing lower by front-month expiration, at the close on Friday, Aug. 19.

Perhaps these bearish speculators are counting on another post-earnings sell-off. Looking back eight quarters, GPRO has been lower in the session subsequent to earnings six times, with an average loss of 9.1%. This time around, the options market is pricing in an even bolder 19.6% single-day swing in either direction.

Speaking more generally, expectations in the options pits appear to be extremely high ahead of earnings. In fact, GPRO's 50-day ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio registers at an annual high of 2.11, with long calls more than doubling puts. At the same time, though, short interest has been growing. This introduces the possibility that the recent call buyers are, in fact, short sellers hedging their positions against a post-earnings rally.

As explained earlier, GoPro Inc's (NASDAQ:GPRO) earnings history certainly favors the bears. This is true when looking at the charts, as well. GPRO stock has been an absolute disaster from a technical perspective, shedding more than four-fifths of its value on a year-over-year basis -- even after the shares recently posted their best day in months.

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