GPRO reports earnings after the bell this Thursday. 0.08 EPS is expected. I believe the chance of a short squeeze post earnings is real, and here's why:
- GPRO is already down 31% from its ATH
- Over 40% of the float are short, so for new short positions, its practically impossible to borrow shares
- Puts are way more expensive than calls, because investors want downside protection
So, because of these reasons, selling puts can be an attractive wager. On the Oct 31 put spread 10% below the market, a 0.50 wide spread will net you a credit of 0.25. That's pretty nuts, its a 1:1 risk-reward ratio!
If GPRO does anything but decline more than 10% on Friday, these sold puts will make money. And if it does go below the strike price, you can only lose the credit you got, or 100%. Usually on credit spreads, your max loss far exceeds net credit (but the probability is in your favor). Here, you can either make $25 or lose $25, and the odds, in my honest opinion, are in the put seller's favor.
In addition, the expectation is that GRPO falls like a rock. I can't find one positive opinion out there, or even a neutral one! Everyone on StockTwits is pounding the table on $50 as the next stop. To me, I'd rather take the risk of a coin toss and go Delta positive.
Here's the trade: -8 GPRO Oct31 60/59.50p @ 0.25
Max Risk and Max Profit are both $200, so nothing spectacular here.
As usual with any trade I put one, GPRO tanked immediately after getting filled. Now the spread is at 0.30 so I've lost $40 in about 20 minutes. Doesn't change anything.
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