Options Volume Suggests Grim Outlook for Snap Stock

The social media giant has been the subject of a slew of negative analyst attention

Managing Editor
Jan 18, 2018 at 1:02 PM
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The 20 stocks listed in the table below have attracted the highest total weekly options volume during the past 10 days. Stocks highlighted in yellow are new entries to the list. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One of the names to note is Snapchat parent Snap Inc. (NYSE:SNAP). Below, we'll break down recent options trading activity on SNAP.

MOV Weekly Chart Jan 18

Snap stock has been largely disappointing since its March initial public offering (IPO). Shortly after going public, the social media stock peaked at a record of $29.44, but was trading south of its IPO price of $17 by mid-July. The shares have struggled beneath this key level in the subsequent months, and are now poised for a fifth straight weekly drop -- what will be its longest weekly losing streak since the July/August period that culminated in a record low of $11.28 on Aug. 14.

Weighing on SNAP stock has been a recent slew of downgrades and price-target cuts. Just yesterday, in fact, MoffettNathanson cut its price target by $1 to $6 -- representing a decline of more than 50% from the equity's current perch at $13.85. Currently, the majority of the 28 analysts following the Snapchat parent carry "hold" or worse ratings, which isn't too surprising considering the aforementioned struggles on the charts.

During the past two weeks, SNAP has seen more than 150,000 weekly put options change hands -- more than three times the number of weekly calls exchanged -- per the table above. Digging deeper, the weekly 2/9 15-strike put has been one of the most added options, with open interest surging by more than 21,000 contracts. "Vanilla" buyers of the puts expect SNAP shares to extend their recent retreat south of $15 through the close on Friday, Feb. 9, when the options expire -- and just a few sessions after Snap Inc is scheduled to report earnings.

Total put open interest on SNAP is now at its highest point ever, with more than 745,000 contracts outstanding. That's compared to roughly 530,000 total calls open. Still, the security's 30-day implied volatility (IV) skew of -1.1% ranks in the 10th percentile of its annual range, meaning short-term puts have rarely been cheaper compared to their call counterparts.

Today, it looks like one trader may be rolling a bearishly biased straddle on SNAP. Options volume is running at roughly two times the average intraday clip, with most of the action centered around the January 2018 and March 20 strikes. Specifically, it looks like a trader may be closing January-dated straddles to open straddles in the March series. If so, the spreads were established for a net debit of $6.51, and are more likely to profit on the downside (breakeven at $13.49) than the upside (breakeven at $26.51).

 

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