Update: Oh Snap!

by Dan November 8, 2017 2:50 pm • Trade Updates

On Monday we previewed Snap Inc’s (SNAP) Q3 results that were reported last night and had the following to say:

I am hard pressed to think that the SNAP’s management’s messaging will improve dramatically from last quarter, and I would also be surprised to see a meaningful acceleration in the metrics that so disappointed investors last quarter, or hear that the company has charted a quicker path to profitability. Nothing that big changed significantly in three months. However, I am optimistic about this young company’s prospects, its products and its opportunity. I think it is important to consider how few social properties there are with an audience greater than 100 million daily active users. While investors have been disappointed about the company’s stunted growth this year following Facebook’s copycat behavior of SNAP’s core offering, that same willingness to copy is also a reason I expect this company to get bought by a larger tech or media company, similar to my belief that Twitter will also be acquired.

Additionally, Snap is one of the few social media companies that will avoid the worsening headlines of fake news, Russian bots and Neo-Nazi trolls (plaguing companies like TWTR, FB and GOOGL) as they’re not really in that game.

All that said, and in the meantime, and miss and squishy guidance and I suspect the stock is on its way back towards $12.50 – $13.

The company reported the quarter, guidance and commentary were bad and the stock is trading down 16% as I write, trading between the range that I guessed it might go to on a miss. Here was the trade idea we detailed to play for a move this week back to those levels:

TRADE IDEA: SNAP ($15.10) BUY NOV 10TH 15 / 12.50 / 10 PUT FLY FOR 65 CENTS
Buy 1 Nov10 15 put for 1.02
Sell 2 Nov10 12.50 puts at 20 cents each or 40 cents total
Buy 1 Nov10 10 put for 3 cents

With the stock at $12.65 the Nov 10th weekly 15  / 12.50 / 10 put butterfly can be sold at $1.95 for a $1.35 profit. At this point you could take the profit, or try to wait out the next two trading days and see if the stock closes near $12.50, at which point the butterfly would be very near its full value of $2.50 for a 1.85 gain.  I think it makes little sense to wait at this point and would be inclined to take the profit towards the end of the day today.

On the flipside, we detailed a call spread in December for those who thought a beat and raise might call the sort of squeeze Twitter shares saw post earnings last month. In this instance we thought it made sense to give this trade some more time to work out as opposed to the put butterfly where we were playing for a gap and crap:

Buy 1 Dec 15 call for 1.40
Sell 1 Dec 20 call at 25 cents

At this point the Dec 15 call is worth about 25 cents and it probably makes sense to close the trade for a loss. This is a good example of the what happens when you are wrong on a long premium bet into an event, needing to get a lot of things right to just be in the game. With direction wrong, the magnitude of the move becomes irrelevant, and while time is still your friend, the long call is so far out of the money, for those who are inclined to hang on it should be viewed as a lotto ticket. But the stock is down $2.50 today, and this trade idea that offered profit potential of up to $3.85 over nearly 6 weeks is only down 90 cents.