SNAP Analysis

Snap Inc. (SNAP)

Update 4/5/2017: I have exited SNAP at 17% of its maximum potential profit, someone below my 25% profit. Why the early exit?

Many, perhaps most, non-directional trades eventually become directional, and that’s what has happened with SNAP since I entered my volatility play. For directional analysis, I turn to Elliott wave analysis.

snap05
SNAP 30 days hourly bars

SNAP has been traded only since March 2, so the analysis will of necessity be both piecemeal and short term. After the IPO the price shot upward and then began a decline in the standard three-wave pattern identified in Elliott as a corrective wave.

So far SNAP shows an A wave to the downside composed of five subwaves and is now tracing a B wave to the upside. It is on the second, or “b”, subwave of that movement. Afterward, it will resume its rise in a wave c of the larger scale B wave, as noted in the yellow rectangle on the chart.

I exited because wave b of B has already retraced more than half of the wave a of B rise, well satisfying the form requirement of Elliott wave analysis. I judged that evidence pointed toward an upside move sooner rather than later, and so I judged it more prudent to take the profit, thereby eliminating the risk.

Shares rose by 3.5% over 23 days, or a 56% annual rate. The options position produced a 20.2% yield on debit for a +321% annual rate


 

SNAP is in its ninth day of trading since its initial public offering, with the stock price showing the usual post-IPO instability.

Today is the third day that options have traded. The are quite liquid — no surprise for such a high profile offering — and today implied volatility is at the peak of the symbol’s short history and at a very high level compared to the the benchmark VIX.

I shall use the APR series of options, which trades for the last time 38 days hence, on April 21.

Implied volatility stands at 51%, which is 4.1 times the VIX, a measure of the volatility of the S&P 500 index.

SNAP’s IV stands in the 98th percentile its most recent broad movement.

The price used for analysis was $20.54.

Premium: $2.20 Expire OTM iron fly
SNAP   Odds Delta
Calls
Long 24.00 84.0% 21
Break-even 22.20
Short 20.00 46.4% 60
Puts
Short 20.00 52.9% 40
Break-even 17.80
Long 16.00 90.2% 10

The premium is 55% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I have entered a direction-neutral position on SNAP as described above. The stock at the time of entry was priced at $20.54.

By Tim Bovee, Portland, Oregon, March 14, 2017

3 thoughts on “SNAP Analysis

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