Breaking down a big winner from Schaeffer's Expiration Week Countdown service
Subscribers to Schaeffer's Expiration Week Countdown just scored a 200% profit with the Snap Inc (NYSE:SNAP) August 12.50 put. We're going to take a look back to see why we were initially bearish on SNAP stock, and how the options trade unfolded.
At the time of our recommendation on Sunday, Aug. 12, we noted that on each previous occasion in SNAP's short life as a public company, the trading day immediately following the reporting of company earnings (in the after-hours the previous day) had been wild and crazy. There had been five such occasions before this month, and on four of them, the declines by SNAP down to the low on that subsequent day ranged from 15% to 25%, while on the other occasion, the shares rallied by as much as 50% from the prior day's close.
We also observed that the 8.2% decline from the close on Tuesday, Aug. 7, in the pre-earnings session to the low of $12.04 on Wednesday, Aug. 8, after earnings was a boon to SNAP option premium sellers -- though pretty much a non-event for everyone else. What's more, the options market seemed to be concluding that SNAP's crazy days were behind it, with August option premium cheap after earnings -- per the implied volatility of 39%, which was lower than 99% of such readings over the past 12 months.
We targeted a key overhead technical level at $13, which had held Snap in check recently, and also noted Snap was very vulnerable over the August expiration week to a renewed pullback that could take out $12 support. In our Sunday night bulletin, we recommended subscribers enter a market order to buy the August 12.50 put on Monday, Aug. 13.
Snap stock opened Monday trading just at $12.24. On Tuesday, Aug. 14, SNAP began to embark on a six-day losing streak, with the downside exacerbated by an after-the-close announcement that Catue Management dissolved its stake in the Snapchat parent. The stock continued falling into Friday's options expiration -- hitting an intraday low of $11.63 -- allowing us to close lock in a 200% profit on the put buy in a mere five days.
