Short squeeze at playTOO MUCH BAD NEWS IN THE PRICE?
All it took was a positive comment from the Pacific Crest analyst yesterday, about the upcoming earnings and the prospects for Karma, to take the stock 10% up in 3x average volume. Short interest has been so high on GPRO and the stock has been so neglected in the recent rally that any marginally positive presumption (not even news) seems to want to take the stock higher. This is encouraging ahead of earnings, and points to the amount of negative expectations built into the stock right now.
EXCITING TECHNICAL BREAKOUT
Yesterday gave us a proper, solid breakout:
- Gap up at the open;
- Close above the open;
- Heavy trading volume;
- Back in the previous consolidation channel.
EARNINGS COMING UP: WHAT TO DO?
Current holders should continue to hold, in case the short squeeze extends into earnings. Volatility has subsided somewhat but remains elevated, which means non-owners should build a synthetic position to take advantage of this situation while being exposed to further upside.
CREDIT OPTIONS STRATEGY
SELL GPRO 17FEB17 $9 PUT = +$0.39 (ind.)
BUY GPRO 17FEB17 $11 PUT = -$0.28 (ind.)
TOTAL = $0.11/SHARE
RISK AND REWARD?
Get paid to wait for a continuation of the breakout.
Main risk: Company disappoints, stock crashes, investor gets assigned the shares at $9.
Best case: Stock trades above $11, investor makes money on both options or buys the shares at $11.
