Snap Stock Call Options Hot Ahead of Earnings

Snap stock gapped sharply lower after the social media name reported earnings in May

by Karee Venema

Published on Aug 9, 2017 at 11:02 AM
Updated on Aug 9, 2017 at 12:40 PM

After Snap Inc (NYSE:SNAP) reported a big quarterly loss and disappointing user growth last May, the shares plunges 21.5% in the subsequent session. And despite a short-lived rally in the immediate aftermath of this bear gap, the shares were rejected near $22, and have been trending lower since to hit a record low of $11.91 last Thursday, Aug. 3. But ahead of the Snapchat parent's sophomore earnings report -- due after the U.S. stock market closes tomorrow -- options traders have shown a preference for calls.

In fact, call open interest is at its highest point since SNAP first began trading options on Friday, March 10, with 568,120 contracts outstanding. Over the past 10 trading sessions alone, roughly 679,000 calls have traded on Snap stock, compared to around 518,000 puts. 

Most active over this time frame was the stock's August 14 call, where 49,322 contracts traded -- the bulk of which translated into open interest. This strike is now home to SNAP's top front-month position, with 27,844 contracts outstanding.

Per Trade-Alert, a significant part of this action occurred last Thursday, when a block of 12,333 contracts was bought to open for $789,312 (number of contracts * $0.64 premium paid * 100 shares per contract). This is the most the trader stands to lose, should SNAP settle below $14 at next Friday's close -- when the options expire -- while profit will accumulate on a move north of breakeven at $14.64 (strike less net debit).

Also seeing notable pre-earnings attention has been the security's weekly 8/11 15-strike call, with 25,943 contracts added in the last two weeks. The bulk of this activity happened last Friday, Aug. 4, when one trader purchased 15,179 contracts for $0.47 apiece, resulting in an initial net debit of $713,413.

Snap shares briefly traded north of $14 on Monday, and haven't seen the north side of $15 since July 20. Most recently, Snap was seen trading at $13.15, down 22.6% from its early March initial public offering (IPO) of $17, and 45.2% from its March 2 open at $24.

As such -- and given the stock's dismal post-earnings performance in May -- some of this recent call buying could be a result of short sellers using options to hedge against any upside risk. There are currently 68.92 million Snap shares sold short -- 36.6% of the equity's available float, and just off the July 1 record high of 71.81 million shares.
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