Snap Stock Call Options Hot During Rally

SNAP short sellers may be using options to hedge against upside risk

Managing Editor
Sep 8, 2017 at 3:03 PM
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There's been notable options volume on Snapchat parent Snap Inc (NYSE:SNAP), as the stock attempts to bounce back to its IPO price of $17. Here's a closer look at how options traders have been positioning themselves on shares of SNAP.

The 20 stocks listed in the table below have attracted the highest weekly options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

MAO sept 8

SNAP shares are currently up 1.4% to trade at $15.36, and earlier hit $15.80 -- its highest mark since July 13. Since falling to a record low of $11.28 on Aug. 14, the stock has been rebounding, up 36%, thanks in part to a bullish note from Stifel on Tuesday. Nevertheless, the stock still remains a laggard, and has underperformed the broader S&P 500 Index (SPX) by nearly 21 percentage points during the last three months. 

Options traders have been been buying to open more calls than puts amid this rebound. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have initiated 48,157 calls on SNAP stock in the last two weeks, compared to 28,127 puts -- resulting in a top-heavy call/put volume ratio of 1.71

Drilling down, the security's weekly 9/8 15.50-strike call has seen the biggest increase in open interest over this time frame, with 5,802 contracts added and the major options exchanges are signaling buy-to-open activity. Based on SNAP's current price, it looks like this option is set to expire out of the money (OOTM) at tonight's close.

Today, call volume is accelerated, with 86,770 contracts traded -- 1.6 times the average intraday rate, and on track to rank in the 91st percentile of its annual range. The September 16 call is the most active, with over 31,000 contracts traded, with buy-to-open activity detected. If this is the case, the goal is for SNAP to break out north of $16 by next Friday's close, when the front-month option expires.

All of this OOTM call buying comes as SNAP remains a heavily shorted stock. While short interest decreased in the latest reporting period, over 10% of SNAP stock's total available float is still sold short. This suggests that short sellers could be initiating options hedges against any additional upside risk.

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