Tuesday, July 21, 2015

GPRO Analysis

The wearable and mountable camera maker GoPro Inc. (GPRO), headquartered in San Mateo, California, publishes earnings after the closing bell on Tuesday.

[GPRO in Wikipedia]



Click on chart to enlarge.
GPRO at 11 a.m. New York time, 30 days hourly bars
Implied volatility stands at 60.7%, which is 5.6 times the VIX, a measure of volatility of the S&P 500 index. GPRO’s volatility stands at the top of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

I shall use the AUG monthly series of options, which trades for the last time !0 days hence, on Aug. 21.

Iron condor, short the $70 calls and long the $72 calls,
short the $50 puts and long the $48 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money


Implied volatility on GPRO is extremely high, which makes for a very wide range that must be covered by the profit zone. I give top priority to the width implied by past movements immediately after earnings are published, and have filled in a proposed iron condor that would cover that range.

However, strike prices on the AUG series of options only go to $66.50, with a 74.9% probability of expiring out of the money for maximum profit, and $52, with a 70.5% probability.

Weekly options expiring sooner either have no improvement in the coverage or, in a few cases where the strikes go up to $80, lack sufficient open interest to support a trade.

Bottom line: GPRO's liquidity is too low for my purposes because it produces an insufficiently wide options grid.

Decision for My Account

I'm declining to trade GPRO because of the liquidity isn't high enough.

-- Tim Bovee, Portland, Oregon, July 21, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.

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