While the hedging strategy involving Facebook Inc (NASDAQ:FB) seems to have done well, GoPro Inc (NASDAQ:GPRO) option hedging as suggested by Options Actions traders on CNBC did not bear the same fruit. What should the holders of these options position do now?
Both Facebook and GoPro faced opposite fortunes in terms of the direction that their stock prices headed after their respective Earnings call. Facebook Inc (NASDAQ:FB) was trading somewhere around $80 before the Earnings release, but now it stands at $74.99, as of the closing bell on the last trading day.
Dan Nathan of Options Actions traders set up a trade involving Facebook’s stock, before they mayhem that preceded after teh Earnings release, by selling the December $90 Call at $1.20 and using the proceeds to buy December $70 Put. The feature of the trade which makes it a brilliant bet is of course the protection from downside that it provided on Facebook Inc (NASDAQ:FB) through that $70 Put, since the stock has tumbled.
“[…] All of a sudden now you have $5 in losses on your stock, with a $1 gains in your Put. I think that since we have almost two months left before expiration, I think you leave this on. I think that at some point pretty soon, you cover that call, you don’t need to be short a tiny call out of the money but you have this put right where you want it,” said Nathan.
GoPro Inc (NASDAQ:GPRO) was not in the same boat as Facebook Inc (NASDAQ:FB). Its stock rose after the earnings release. Something that the Options Action traders didn’t think could happen. However, the losses on the trade are anything but steep.
By buying a $60 Put at $7 and selling two $50 Puts at $6.5, the trade was profitable if the GoPro Inc (NASDAQ:GPRO) stock remained in the $40.5 and $59.5 range. Well, that didn’t happen and the stock rose considerably. It was trading at $77.1 on the last trading day, up about 12.97% for the day.
However, Options Action traders were still of the opinion that there is hope for the GoPro Inc (NASDAQ:GPRO) position and it should be held, considering that the losses are as mentioned earlier not hefty.
“My point is where you would get forced to purchase the stock is significantly lower than where it is right now and you have a lot of time for this to play out for the shorts to actually get their way and there is a big short interest that is going to support any of these things,” said Michael Khouw.
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