In the Bloomberg show ‘Market Makers,’ anchor Matt Miller discussed with Joe Tigay, who is the Investment Adviser Representative for the Stutland Volatility Group, on the trading activity and volatility in the recently introduced options of GoPro Inc (NASDAQ:GPRO).
“[…] the volatility is just crazy, the projections of growth are all over the place, so there is really no way to know exactly what is going on. I am not sure or so on, however I can tell you on Friday, the cost of carry which is the price to be short the stock was 10% a month which is tremendously high. So what was happening was we have a very small issue of shares,” Tigay said.
Tigay added that since there are very limited number of shares to trade, there is extremely high short interest in the stock of GoPro Inc (NASDAQ:GPRO) and that interest is filtering into the options market for GoPro Inc (NASDAQ:GPRO) which opened on June 7, 2014.
“If you lift up the hood of an options pricing you know that interest rate is one of the components to pricing an option, so this is making the ‘Puts’ extremely pricey in GoPro.”
He added that option traders are expecting a 4% move in the stock in a day, which is very high. Tigay said that the volatility in the market has been extremely low and that the volatility index (VIX) has been in the range of 11 and 10.
“Now at some point as an objective viewer I have to look at this market and say, you know this can’t go on forever, and there is a lot of names out there that have had tremendous runs, and I think it is more prudent instead of owning those stocks you can substitute those stocks out and be in those names with long call positions. Especially, with the volatility this cheap, it is a very cheap entry point in order to get into and play the market on the upside without a complete downside risk.”