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GoPro Offering New View for Volatility-Starved Traders: Options

GoPro founder Nick Woodman
Nick Woodman, founder and chief executive officer of GoPro Inc., stands for a photograph with a GoPro Hero 3+ camera in his mouth after ringing the opening bell for the release of the company's IPO at the Nasdaq MarketSite in New York. Photographer: Victor J. Blue/Bloomberg

July 7 (Bloomberg) -- GoPro Inc. is giving investors something they’ve been craving -- volatility and volume.

Shares in the company, which makes first-person-viewpoint cameras used by daredevils, were among the most-traded in the U.S. as they doubled after an initial public offering less than two weeks ago. Traders will get a new way to speculate on the company today as options on the stock are introduced, one of the most highly anticipated debuts since Twitter Inc. dominated volume in puts and calls after its IPO last year.

“The stock is clearly showing a lot of volatility, which is hard to come by nowadays,” Kurt Ayling, a technology, media and telecom analyst at New York-based Susquehanna Financial Group LLP, said in a July 1 interview. “It will likely attract a wide variety of investors, especially given the recent outsized moves in the stock.”

High levels of investor interest pushed GoPro’s stock up 16 percent to $41.58 last week, extending its gain since going public to 73 percent. GoPro shares debuted at $24, the high end of a marketed range, on the Nasdaq Stock Market on June 26. The company’s shares climbed 5.7 percent to $43.96 at 4 p.m. in New York today.

A daily average of almost 38 million shares of GoPro traded in the first five days following the company’s IPO. That’s the fifth-highest volume out of about 5,000 U.S.-based companies over that period. The elevated levels have put GoPro in the same league as heavily traded stocks like Apple Inc., Bank of America Corp. and Facebook Inc.

Strike Prices

GoPro options have a strike price between $35 and $50, according to a statement last week from the CBOE. The position limit is 75,000 contracts and the initial options expire in July, August, October and January.

Traders exchanged about 17,000 bullish options and 10,000 bearish options tied to GoPro shares, the third highest volume today among companies in the Bloomberg IPO Index. Eight of the 10 most actively traded contracts today were calls, with strike prices as high as $60.

Investors have been looking for opportunities to profit from swings in stocks amid the calmest market since 1995. The U.S. benchmark equity gauge has gone 54 days without closing up or down 1 percent, the longest stretch since 1995, according to data compiled by Bloomberg. The Chicago Board Options Exchange’s Volatility Index lost 8.4 percent to 10.32 last week, the lowest level in seven years.

Higher volatility is common for a popular stock right after it goes public as the market attempts to pinpoint its proper valuation, according to Tim Biggam of TradingBlock. Investors may also use options to hedge against outsized moves immediately after a stock starts trading publicly, he said.

‘Monster Move’

“There will be a feeling-out period on implied volatility,” Biggam, chief options strategist at TradingBlock, a brokerage firm at the CBOE, said by phone July 1. The company’s options “will be used as a hedging mechanism for sure, given the fact that the stock has had a monster move,” he said.

GoPro’s stock more than doubled in its first four days of trading. The shares have dropped 15 percent since then. Facebook lost 13 percent in its first week of trading on the Nasdaq in 2012, while Twitter climbed 64 percent in its first five days on the New York Stock Exchange last year.

GoPro last year sold 3.8 million of its waterproof cameras, which are often mounted to helmets of adventurers such as skiers and sky divers. The company’s cameras have attracted a younger, social-media-savvy generation that wants the product used by famous athletes, such as snowboarder Shaun White, and post their exploits online.

Last year, customers uploaded almost three years of footage taken using the devices, and the user-generated content is distributed through Facebook, Twitter and Instagram. On Google Inc.’s YouTube alone, there have been more than 500 million views of GoPro videos.

‘Incredible Brand’

“Gazillions of people have GoPros, and it’s built an incredible brand -- everyone knows the name,” Jim Strugger, a derivatives strategist at MKM Partners LLC in Stamford, Connecticut, said in a July 1 phone interview. “You can look at a name like this and be pretty confident that options are going to trade like water.”

GoPro generated $966 million of revenue and $49 million of net income over the 12 months through March, according to company filings. The company’s profit is forecast to grow 11 percent in 2015, according to estimates compiled by Bloomberg.

It trades for 56 times projected earnings over the next 12 months, compared with an average multiple of 83 for companies in the Bloomberg’s index of IPO companies that are forecast to turn a profit. About half of the 205 newly public companies in the gauge are forecast to post a loss.

The fact that GoPro is already making money may mean its share-price swings will settle sooner than companies that are initially unprofitable but face a similar level of share demand, according to Brian Overby of TradeKing LLC. The price swings that the market is seeking from the stock may dwindle sooner than investors think, he said.

‘Tame Volatility’

“GoPro already has earnings going out the door, which will help a lot in price discovery,” Overby, an options analyst for brokerage firm TradeKing in Charlotte, North Carolina, said in a July 1 phone interview. “It will also help tame volatility.”

The success of GoPro’s stock so far has investors drawing parallels between it and Twitter’s debut. The unprofitable micro-blogging site soared 73 percent in the month after the share offering. Options on the stock began trading on the CBOE Nov. 15.

Twitter’s implied volatility, or the cost to buy options, was 62.3 on average in its first week of options trading, according to data on three-month contracts closest to the stock price. The measure has since fallen to 52.3. Traders own about 1.2 million Twitter contracts as of July 3, more than eight times the average open interest on a stock in the Russell 1000 Index.

“Twitter is the best analogy right now because that was the last big name people were talking about,” Steve Sosnick, equity risk manager at Timber Hill LLC, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc., said by phone July 1. “I see no reason to believe there will not be a lot of interest in the options from speculators. You’ve had the stock essentially double since the IPO, so it’s obviously the sort of name that people will try to speculate on it further advancing.”

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland

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