Options Traders Bet on Sustained Snap Stock Rally


Dec. 23 2019, Published 2:08 p.m. ET

Snap (SNAP) stock closed at $15.55 in the latest trading session, marking a 0.58% rise from the previous day. This change lagged the S&P 500’s (SPY) daily gain of 0.49%. Meanwhile, the Dow Jones Industrial Average (DIA) gained 0.28%, and the tech-heavy Nasdaq index gained 0.42%.

Snap faced massive bullish betting in the December 20 trading session. Since my last article about SNAP, Snap Stock: An End in Sight to the Recent Decline?, the stock has risen from $14.15 to $15.55 as of December 20. This increase represents an upside of about 9.8%.

Snap stock has also returned 3.1% over the past month, which shows that it has underperformed the US interactive media and services industry. The industry has returned 4.4% during the same timefrane. 

We’ve seen several bullish bets on SNAP over the past week. These transactions suggest the stock could surge in the coming weeks and months. With that being said, I’d like to bring to light the stock’s recent options trades and what those mean for investors.

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Options traders expect a 9% move in SNAP

At a $16.00 strike price that expires on January 17, the implied volatility levels for the options stand at 29.3% for the stock. For instance, the SPDR S&P 500 Trust ETF’s (SPY) implied volatility level stands at 10.8% for the same expiration date. This number means that traders expect the stock to be more volatile than the overall market. Let’s look at SNAP’s option chain to estimate the expected price movement and option traders’ sentiment for the stock. 

Looking at the January 17 options, I see a bid/ask for the $16.00 call option of $0.45/$0.47. Also, I see a bid/ask for the $16.00 put option of $0.86/$0.96. Keep in mind that the options strike is closest to the SNAP closing price of $15.55 on Friday, 20. We can calculate the expected price move using the mid-prices of the given options:

0.91 (16.00 put) + 0.46 (16.00 call) = 1.37/15.55 = 8.8%

The options imply that SNAP stock could rise or fall by about 9% by the January expirations from the $16.00 strike price. This estimation utilizes the long straddle strategy. The given assessment would place SNAP stock in a trading range of $14.15–$16.95 by the expiration date.

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Pay attention to the number of open calls and put contracts, too. In Snap’s case, the number of open calls at the $16.00 strike price outweigh the open puts by around 10x. There are currently 20,329 calls to 2,108 open puts. A buyer of the $16.00 strike price calls would need the stock to rise to around $16.47 by the expiration date to break even. This difference suggests that options traders are bullish on Snap stock

Options traders’ huge bullish bets on Snap stock

The open interest levels for the January 10 $17.00 calls have seen rises in their open interest levels on December 20. Their open contracts increased by 14,874 contracts to approximately 14,974 (according to data provided by Barchart.com). With that, it’s sufficient to say that this particular transaction looks like a moderate bullish bet. The bet has a total value of about $200,000, given the price per contract of $0.13. In addition, the stock would need to rise to $17.13 by the March expiration to break even. That’s a gain of approximately 10.2% from SNAP’s price on December 20.

The open interest for the $16.00 calls that expire on January 10 rose by 5,317 contracts on December 20. This rise came in at a total of 5,751 open contracts. A buyer of the calls would need Snap stock rise to $16.35 by the expiration date to earn a profit.

Want to read more technical analysis stories? Take a look at some of my other Market Realist articles:


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