Call Buyers Blitz Booming Snap Stock

SNAP short sellers have started covering

May 30, 2019 at 2:43 PM
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Snap Inc (NYSE:SNAP) options volume is heavy today, as the shares of the Snapchat parent jump 1.6% to trade at $11.87 -- putting them within striking distance of their April 8 eight-month peak at $12.63. Most of the action has been at the hands of bullish speculators, as they target even more upside for the social media stock over the next week.

More specifically, almost 104,000 SNAP call options have changed hands today -- four times what's typically seen at this point. For the sake of comparison, around 25,000 puts have been exchanged.

Most active by a mile is Snap's weekly 6/7 12-strike call, where roughly 31,500 contracts have traded. Data from Trade-Alert points to buy-to-open activity here, including a 5,915-contract block that was likely purchased for an initial cash outlay of $177,450 (number of contracts * $0.30 premium paid * 100 shares per contract).

This is the most the call buyer stands to lose, should SNAP stock settle below $12 at the close next Friday, June 7, when the weekly options expire. Profit, on the other hand, is theoretically unlimited on a move above breakeven at $12.30 (strike plus premium paid).

Today's heavy call buying echoes a broader trend seen in Snap's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 2.31 ranks in the 87th annual percentile, meaning long calls have been initiated relative to long puts at an accelerated clip.

It's certainly an attractive time to purchase premium on short-term SNAP options. The stock's Schaeffer's Volatility Index (SVI) of 53% registers in the 14th annual percentile, signaling relatively muted volatility expectations at the moment. Plus, Snap has consistently made outsized moves over the past year, compared to what the options market priced in -- a boon to premium buyers -- per its elevated Schaeffer's Volatility Scorecard (SVS) reading of 89 (out of a possible 100).

Snap shares could add to their already impressive 116.2% year-to-date gain, should short sellers continue to cover. Short interest fell 3.1% in the most recent reporting period, yet the 90.83 million shares still sold short account for a healthy 7.6% of the equity's available float, or 3.6 times the average daily pace of trading.

snap stock daily price chart on may 30


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