Pre-Earnings Call Buyers Blast Bouncing Snap Stock

Snap stock has struggled since going public in early March, but options traders continue to place bullish bets

May 4, 2017 at 3:36 PM
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Snapchat parent Snap Inc (NYSE:SNAP) is slated to take its inaugural turn in the earnings confessional as a publicly traded company next Wednesday, May 10. Ahead of the event, SNAP stock is trading up 4.5% today at $22.81, after the tech company said it has expanded its production deal with Scripps Networks Interactive, Inc. (NASDAQ:SNI). SNAP options traders are betting on even more gains for the shares after earnings, too, with call volume trading at a faster-than-usual clip.

By the numbers, roughly 42,050 call options have changed hands on SNAP, nearly three times what's typically seen at this point in the day, compared to around 11,500 puts. The weekly 5/26 27.50-strike call is most active, and it seems safe to assume new positions are being purchased here -- a theory echoed by Trade-Alert. It looks like one trader bought to open a block of 7,929 of these calls for $0.45 each; if this is the case, the goal is for SNAP stock to break out above $27.95 (strike plus premium paid) by the close on Friday, May 26 -- when the weekly options expire.

Today's bullish positioning by options traders is just more of the same, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SNAP options traders have bought to open 28,229 calls, versus 10,366 puts. Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.73, which means call open interest outweighs put open interest among options set to expire in three months or less.

Drilling down, peak call open interest on SNAP options is currently found at the weekly 5/12 24 strike, with 11,376 contracts in residence. Data from the major options exchanges confirms some buy-to-open activity here, suggesting traders are betting on SNAP to settle north of $24 at next Friday's close.

Regardless of whether the calls expire out of the money, the most the options buyers stand to lose is the initial premium paid. However, pre-earnings volatility expectations toward SNAP stock are on the rise, meaning premium could be more expensive. In fact, the equity's 30-day at-the-money implied volatility of 67.4% ranks above 88% of all other similar readings taken since SNAP began trading options on March 10. Plus, its Schaeffer's Volatility Index (SVI) of 84% is at its highest perch to date.

Technically, though, it's been a pretty dismal run for Snap Inc (NYSE:SNAP). Since hitting a record high of $29.44 on its second day of trading, SNAP stock has shed 22.7%, with $23-$24 most recently emerging as a ceiling. This region coincides with a 50% Fibonacci retracement of SNAP's record high and low (of $18.90, hit on March 17).

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