Options Traders Bet on Another Big Earnings Move for Snap Stock

Call options are unusually popular ahead of Snap's earnings release

Deputy Editor
Jul 23, 2019 at 2:29 PM
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Social media name Snap Inc (NYSE:SNAP) is on the rise today, up 3.2% at $14.62, just ahead of its second-quarter earnings report, slated for release after the close tonight. This positive price action comes courtesy of a bullish analyst note, as Stifel this morning upgraded SNAP stock to "buy" from "hold," and lifted its price target to $17 from $13.

On the charts, the equity has been cooling down after hitting a 15-month high of $16.20 on July 12. Lately, the $14 area has provided a net for SNAP, and now the security is testing its footing right at its 30-day moving average, after several sessions below the trendline. 

SNAP CHart July 23

As previously mentioned, SNAP is set to step into the earnings confessional this evening, and options traders are pricing in a particularly wide post-earnings move of 21.9%, compared to the 17.9% swing the stock has averaged the day after its last eight quarterly reports. And while Snap has ended six of these eight post-earnings sessions in the red, it also boasts one eye-popping 47.6% surge post-earnings, clocked the day after its February 2018 earnings report. 

Options traders have all hands on deck today, with 151,000 calls and 89,000 puts across the tape so far -- two times SNAP's average intraday options volume. The weekly 7/26 15-strike call is among the most popular, with over 14,700 contracts traded so far for a volume weighted average price (VWAP) of $0.83.

Trade-Alert data shows a skew toward buy-to-open activity at this strike, and speculators who bought to open these weekly SNAP calls will be profitable if the stock is trading above $15.83 (strike plus premium paid) by the time this contract expires at the end of the week. From current levels, SNAP needs to rally more than 8% in the next few days just for these traders to break even (and that's without a volatility crush coming into the equation).

Today's preference for bullish bets nothing new, though. In fact, during the last 10 days, over four calls have been purchased for every put on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the 100th annual percentile, pointing to a climactic appetite for bullish options on the Snapchat parent ahead of earnings.

Some of those long calls may have been purchased to hedge short stock positions in advance of this event, though. Short interest on the stock rose by 9.6% in the most recent reporting period, and now accounts for a formidable 13.5% of Snap's float.

Elsewhere, despite its recent high and 165% year-to-date gain, the brokerage bunch has taken a generally cautious approach to SNAP. Right now, 20 of the analysts in coverage are calling the stock a "hold" or "sell," while only four rate it a "buy" or better. This diametrically opposed sentiment backdrop sets the stage for another volatile post-earnings move for SNAP -- though it remains to be seen whether last-minute options speculators will profit on their directional bets, given the ramped-up volatility expectations going into the event.

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