Update – SNAP Back?

by CC March 19, 2019 3:04 pm • FREE ACCESS• Trade Updates

SNAP had a fairly brutal 2018, falling from a high above 20 in January before closing the year at 5. It’s been having a much better 2019. Eleven days ago Dan took a look at SNAP, which was then 9.50 and detailed a way to participate in a move back above 10 in the upcoming months. The structure was mildly bullish near term and more bullish over the summer, selling April 11 calls to finance Jule 11 calls. Here was the trade, from March 8th:

SNAP ($9.50) Buy to open April / July 11 call calendar for 54 cents

-Sell to open 1 April 11 call at 15 cents

-Buy to open 1 July 11 call for 69 cents

The stock is up more than 10% over the past week and now sits just below the 11 strike. With the stock 10.70 this call calendar is now worth .75 versus the original .54 at risk. So decent gains so far, but alot more is possible and where the stock is is perfect for this trade.

From a trade management standpoint there is one main thing to keep an eye on. Obviously if the stock were to stall here, or even pull back slightly this would continue to make money. The April calls will start to decay rapidly with the stock at or below 11. However, if the stock were to keep going higher and not even pause there is some risk to messing up this good trade by allowing the stock to get too high above 11 before April 18th. Therefore the leash here should probably be more to the upside. If the stock gets to 11 or higher it may make sense to roll the April call out to July, creating a vertical call spread. There’s no rush to do that obviously, the trade is in perfect shape for now. And the more patience shown on the April calls, the more the reward near term. But it’s something to keep an eye on.

On the flipside, if the stock were to pull back a little it should be fine as long as we’re not talking sub 10 level. The earnings event is after April expiration so as those short April calls decay, the July’s should hold value pretty well (and just trade on delta) because they capture that event.

To recap, over the next few weeks sideways is perfect, slightly higher is perfect, even slightly lower is fine. A big move higher and a roll is in order, a big move lower and a normal stop at original cost probably makes sense.