SNAP Option Players Predict New Lows

SNAP stock hasn't traded near its $17 IPO price since July

Managing Editor
Oct 6, 2017 at 1:06 PM
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This week, Alphabet Inc's (NASDAQ:GOOGL) Google announced plans for a smart video camera, capable of automatically recording photo-worthy actions, like a child smiling. Snapchat parent Snap Inc (NYSE:SNAP) is one of the stocks that turned lower on the news, with Google Clips set to compete with SNAP's Spectacles. Below, we will check in with SNAP stock, and see how recent options traders are viewing the popular social media name.

At last check, SNAP is up 1.5% to trade at $14.70. The stock had dipped earlier in the week following Google's big event, but has recovered enough to remain on track to eke out a weekly gain.

From a longer-term perspective, SNAP tested its IPO price of $17 for much of June, then finally broke south in July, gapping lower after bearish analyst attention from underwriter Morgan Stanley. The equity subsequently touched a record low of $14.33 in mid-August, following Snap's earnings report, and recent rebound attempts have been capped by its newly formed 80-day moving average. Plus, SNAP stock has struggled to surmount the $15.50-$16 area -- where it landed after the July bear gap -- and hasn't traded above its IPO price of $17 in nearly three months

It's of no surprise then, that Snap stock remains heavily shorted. Short interest increased by 49% during the last two reporting periods, to a record high 103.91 million shares. 

In the options pits, calls have been heavily preferred over puts. Specifically, speculative players have bought to open 1.94 calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in the last 10 days.

Digging deeper, however, the April 13 put saw the biggest increase to open interest during this time frame, with more than 14,000 contracts added. Traders buying the puts to open expect SNAP to breach $13 -- and fall deeper into new-low territory -- by April options expiration.

The good news for traders is that prices are relatively tame on near-term SNAP options. The stock's Schaeffer's Volatility Index (SVI) of 43% ranks lower than 99% of all comparable readings taken in the past year, meaning low volatility expectations are being priced in to near-term options.

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