Gogo, Inc. (GOGO) appeared on our list of compressed stocks this morning. GOGO is a broadband internet provider for aircraft operators. With earnings season about to start and with GOGO shares going pancake flat, we like the idea of buying GOGO options if we can get the right price. 

You can see in the charts below that two of the last three compression signals were fantastic for neutral option buyers. The signals in 2022 generated big profits on big moves. In February GOGO shares made a huge up move. In August, the shares made a huge down move. In both instances, you did not need to pick direction if you chose a neutral strategy.

The current compression signal has a potential catalyst for a big move with an earnings report scheduled for August 7th. Being neutral and getting the right price will be critical for this trade idea.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of GOGO’s stock price over the past 4 years. You can see that the actual behavior (the blue histogram) matches the modeled expectations over the 4-year time period. While this suggests options are fairly priced, this graph does not represent how the stock behaved after a compression signal or after an earnings report. That said, we will attempt to get a price that is better than the current asking price in order to get an edge on our trade.

This Volatility Cone shows us that the volatility expectations (the yellow dots) for each term are near the 4-year historical volatility average. To learn more about the Volatility Cone, click here. This confirms that GOGO options are priced fairly for the 4-year period not considering the compression signal and the earnings report. Even when we consider the compression signal and earnings report we want to be sure to get a price that is better than the current asking price.

This Volatility Term Structure shows us the implied volatility of the at-the-money options for August 16th expiration are the most expensive, as investors are anticipating the earnings report that is scheduled to occur before the August expiration. To learn more about Volatility Term Structure, click here. Investors know that GOGO could make a big move with the earnings report as a potential catalyst. That is pushing the cost for August options higher, but investors may still be underpricing the potential for a big move.

GOGO showed up on our list of compressed stocks. The stock has a decent history of making big moves after a compression signal. We also have a potential catalyst of an earnings report before the August monthly expiration. While investors are beginning to anticipate a big move around the earnings report, they may still be underestimating the potential for a big move in the stock price. If we can get the right price on our neutral trading strategy, we like our chances with a GOGO trade.

To get the details on today’s trade, be sure to read today’s ODDS Online Daily Option Trade Idea.

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.

Thank you,

Don Fishback