Fitbit has surged after earnings in the previous two quarters
Fitbit Inc (NYSE:FIT) is still nowhere close to its 2015 record high of $51.90, with the shares last seen trading at $6.10. But in the previous two quarters, the company's earnings results have resulted in major one-day gains for the stock. By the numbers, FIT stock jumped 15% the day after earnings in August, and 12.1% after earnings in May. In fact, the equity has ended the session after earnings in the black four of the past five quarters -- though the negative outlier was a 33.6% sell-off at this time last year. Still, options traders appear to be taking a bullish approach as the company prepares to report earnings after the close on Wednesday.
Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals that more than 13,100 call options have been bought to open during the past 10 days, compared to roughly 1,500 puts. The resulting call/put volume ratio of 8.68 ranks just 3 percentage points from an annual peak, showing a very unusual appetite for long calls over puts.
On a closer look, the weekly 11/3 6.50-strike call saw the largest increase in open interest during the past two weeks. Data from the major options exchanges confirms mostly buy-to-open activity here, though there was also some sell-to-open action, as well. Those buying the calls expect Fitbit stock to move above $6.50 by the end of the week, when the contracts expire, while the call writers are hoping this price level acts as a short-term ceiling.
Meanwhile, short interest represents almost 16% of FIT's float, with nearly 37 million shares sold short. This equals 8.5 times the equity's average daily trading volume. As such, some of these recent call buyers could be short sellers using options to hedge against an unexpected upside move from the shares.
If the security does rally, it'd catch analysts by surprise, too. There are currently 14 brokerage firms tracking the shares, and just three of them say to buy the stock. Moreover, FIT's average 12-month price target sits just above current levels at $6.81.
As alluded to earlier, Fitbit stock has struggled on the charts, as it's lost more than half its value during the past 12 months. More recently, though, the shares have shown some strength, and just bounced from the $6 area. This area, which formerly served as a layer of resistance, is also home to FIT's 80-day moving average, suggesting a level of technical support could be in place.
