Social Media Stock Poised to Snap Winning Streak

Options traders are piling on SNAP stock today

Managing Editor
Jun 19, 2018 at 10:42 AM
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In line with the broad market sell-off today, shares of Snap Inc (NYSE:SNAP) are plummeting -- down 9.7% to trade at $12.71, at last check -- after Cowen lowered its price target to $9 from $10. The new target represents a discount of nearly 36% to SNAP stock's closing price yesterday, and would represent a new record low for the social media stock. As such, shares of the Snapchat parent are on track to, well, snap their seven-day winning streak.

The Cowen analyst attributed the price-target cut to data that indicated U.S. users were spending 7% less time on the Snapchat app this quarter, compared to last year. In addition, the brokerage firm pointed to lower daily active users, and cut its current-quarter and long-term earnings estimates for Snap. 

After bottoming at a record low of $10.50 in May, the equity furiously rallied up to yesterday's close, adding roughly 38% to effectively fill its earnings-induced bear gap from early May. As alluded to earlier, the stock closed higher for seven straight sessions, marking its longest win streak since late November. However, SNAP's 14-day Relative Strength Index (RSI) closed last night at 72 -- well into overbought territory, suggesting a near-term pullback may have been in the cards.

In the options pits, call buying has been a growing trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.94 ranks in the 81st annual percentile -- indicating long calls have been initiated relative to puts at a quicker-than-usual clip in the last two weeks.

Shifting gears to today, options are flying off the shelves at twice the average intraday pace. Already 56,000 calls and 36,000 puts have changed hands, with volume pacing in the 98th percentile. The weekly 6/22  12.50-strike call and 13-strike put are the most active, with traders speculating on SNAP stock's trajectory through the end of the week.

Whatever the motive, the stock sports a Schaeffer's Volatility Scorecard (SVS) of 88 out of 100, suggesting the equity has handily exceeded options traders' volatility expectations in the past year.

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