This thread takes over from the previous one: "Oversold: Buy the dip."
BAD NEWS OUT OF THE WAY?
The stock was demolished after disappointing earnings and the drone debacle. This lead many analysts to downgrade it (current consensus rating = HOLD) with an estimated average target price at the current money. There currently seems to be a lot of bad news in stock. Short levels have also sky-rocketed recently.
CROOKED H&S OUT OF THE WAY
During this debacle, GPRO completed a somewhat crooked head & shoulders formation and the stock retraced back 55% of the distance from the top of the head to the neckline. It currently looks like it stabilizing in a flat consolidation channel / new trading range.
WHERE TO NOW?
Expecting the stock to take the same time to rebound as it did to complete the H&S - 3 months. Expecting limited downside from here, although more disappointments or a rough market could take it below the historical low, towards the 8.00 level.
THREE TRADING STRATEGIES
1. Outright Long
Buy here and hold for a breakout above 11.35. Stop loss at 9.75, as trading at/below that level would invalidate the rebound.
2. Synthetic long only
Pay $0.43/share for a call option expiring on Jan 20'17 to purchase the shares at $12.
3. Costless options strategy
Buy the Jan 20'17 $12 call at $0.43/share and pair it with same maturity $8 put at the same price. $8/share is a good place to go long if the stock continues to slide because: a) it represents a 90% completion of the H$S formation target, b) it is 7% below the historical low, and c) that level would probably spark take-over discussions to pull the stock back up...
Trade safely.
BAD NEWS OUT OF THE WAY?
The stock was demolished after disappointing earnings and the drone debacle. This lead many analysts to downgrade it (current consensus rating = HOLD) with an estimated average target price at the current money. There currently seems to be a lot of bad news in stock. Short levels have also sky-rocketed recently.
CROOKED H&S OUT OF THE WAY
During this debacle, GPRO completed a somewhat crooked head & shoulders formation and the stock retraced back 55% of the distance from the top of the head to the neckline. It currently looks like it stabilizing in a flat consolidation channel / new trading range.
WHERE TO NOW?
Expecting the stock to take the same time to rebound as it did to complete the H&S - 3 months. Expecting limited downside from here, although more disappointments or a rough market could take it below the historical low, towards the 8.00 level.
THREE TRADING STRATEGIES
1. Outright Long
Buy here and hold for a breakout above 11.35. Stop loss at 9.75, as trading at/below that level would invalidate the rebound.
2. Synthetic long only
Pay $0.43/share for a call option expiring on Jan 20'17 to purchase the shares at $12.
3. Costless options strategy
Buy the Jan 20'17 $12 call at $0.43/share and pair it with same maturity $8 put at the same price. $8/share is a good place to go long if the stock continues to slide because: a) it represents a 90% completion of the H$S formation target, b) it is 7% below the historical low, and c) that level would probably spark take-over discussions to pull the stock back up...
Trade safely.
Since I initiated this post, the costless options strategy has become a credit strategy: Buy the jan'17 $12 call at $0.31/share and sell the jan'17 $8 put at $0.59/share. You make $0.28/share while you await the breakout, or for the chance of going long some 18% lower.