SNAP Call Options Hot as Stock Deepens Breach of IPO Price

Option activity heats up as SNAP hits new lows on the charts

by Patrick Martin

Published on Jul 12, 2017 at 12:52 PM
Updated on Jun 24, 2020 at 10:16 AM

Snapchat parent Snap Inc (NYSE:SNAP) has had a rough time translating its app's popularity into stock market success. After closing Monday at $16.99 -- exactly one penny below its March IPO price -- SNAP gapped well below the $17 level yesterday following a downgrade from lead underwriter Morgan Stanley. The stock's troubles are continuing today, with Snap shares down 0.8% at $15.35, and fresh off a new low of $15.21. Nevertheless, call options are experiencing a major volume surge amid SNAP's sell-off.

On Tuesday, the SNAP October 16 call was the most active option, with 10,428 contracts exchanged -- mostly at the ask price, indicating buying activity. Open interest at this strike jumped by over 9,700 contracts overnight, confirming that new positions were added here. These intermediate-term calls will pay off if SNAP can rally back above $16 per share prior to October options expiration.

Today, meanwhile, SNAP option volume is running at roughly double the expected pace, with approximately 26,000 calls and 29,000 puts changing hands so far. The front-month July 17 call is far and away the most popular strike, as 10,117 contracts have crossed the tape. Again, this appears to be primarily buy-to-open activity, with speculative players banking on a rebound back above the IPO price prior to the close next Friday, July 21.

That said, short sellers have been having a field day with SNAP shares for some time now. Short interest increased by a whopping 81% over the last two reporting periods, with the current accumulation of shorted shares representing 4.3 times the stock's average daily trading volume. Given this hefty supply of short interest, it's possible that some of the recent SNAP call buyers are actually short sellers looking to hedge against a short-term bounce.

For what it's worth, most analysts echo short sellers' negative outlook on the social media upstart. Of the 26 brokerage firms covering SNAP stock, 16 rate it a "hold" or "sell."

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