GoPro Options Red-Hot as Stock Gets Iced

GoPro cut its Q4 revenue outlook and announced job cuts

by Emma Duncan

Published on Jan 8, 2018 at 2:50 PM

GoPro Inc (NASDAQ:GPRO) stock fell to a record low of $5.04 today, after the firm cut its fourth-quarter sales forecast, announced plans to cut its workforce, and said it will exit the drone business. In addition, the firm slashed the price of its Hero6 cameras, and announced the departure of two high-level executives. However, GPRO stock is off its session lows, at last check, amid reports the firm is considering selling itself. After being temporarily halted in early trading, GPRO was last seen down 11.5% at $6.66 -- and set for its biggest options day in a year.

The stock has seen roughly 65,000 calls and 40,000 puts change hands today, set to top previous peaks set in August and February, respectively. The February 10 strike has seen notable activity, and it looks like one trader may be initiating a long straddle, buying to open 4,000 calls and 4,000 puts at the strike. If so, the position is bearishly biased, considering the breakeven rails on the trade. Assuming the speculator opened the straddle for $4.22 per pair of options, the position will profit on a GPRO move above $14.22 (strike plus premium paid) or below $5.78 (strike minus premium paid) by February options expiration.

Echoing this, near-term options traders were already bearishly biased toward GoPro, even before today. The equity's Schaeffer's put/call open interest ratio (SOIR) stands at 1.46, showing put open interest outweighs call open interest among options expiring within three months. This reading ranks in the 86th percentile of its annual range, pointing a stronger-than-usual skew toward short-term puts over calls.

GPRO stock is short-sale restricted today, but there are lots of shorts cheering the decline. These bearish bets account for more than 29% of the stock's total available float. At GoPro's average pace of trading, it would take shorts nearly nine days to cover their bearish bets.

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