SNAP Stock Can't Shake Slump After Subpoenas

The company was accused of misleading IPO disclosures

Deputy Editor
Nov 14, 2018 at 12:03 PM
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Snap Inc (NYSE:SNAP) continues to struggle after its Oct. 26 all-time low of $5.77, and is headed for another day of losses. The stock is down 1.9% to trade at $6.58 at last check, with SNAP pacing for another close beneath resistance at its 20-day moving average. 

This comes after the Snapchat parent announced, late Tuesday, that it is responding to subpoenas from the U.S. Department of Justice (DOJ) and the Securities Exchange Commission (SEC) over allegedly misleading initial public offering (IPO) disclosures.This follows an ongoing lawsuit from Snap shareholders, claiming the company gave misleading information regarding the affect Facebook's Instagram service has had on its growth. In addition to SNAP's IPO woes, Snapchat's vice president of content, Nick Bell, stepped down on Monday -- posting a memo confirming his departure, but remaining silent on its catalyst. 

It has been a rocky year for the social media giant, with the shares down about 55% since the start of 2018. SNAP struggled after an earnings-induced bear gap on May 2 linked to its widely panned app redesign, with the stock's subsequent rally attempt running into stiff resistance near the site of the pre-gap lows. Since then, it's been a steady slide lower.

Analysts have remained bearish on SNAP, too, with 22 of the 25 ratings being a "hold" or "sell." As the shares continue to drop and fundamental concerns mount, even more downgrades could be imminent for the tech concern. 

This bearishness has translated over to the options pits, with the stock's 10-day put/call volume ratio of 0.88 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) standing higher than 73% of all other readings from the past year.

The social media name tends to be a rewarding target for option buyers, too. It boasts a Schaeffer's Volatility Scorecard (SVS) of 100 -- the highest possible rank, which means it has consistently outperformed the volatility expectations priced into its options over the past year.

Elsewhere, short interest represents nearly 19% of the stock's float. At SNAP's average daily trading volume, it would take these traders over a week to cover their bearish bets, which could contribute to future volatility in SNAP stock.

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