[Options] Oh Snap!

Sean McLaughlin
June 8, 2020

Hard to believe some low volatility setups are appearing all over the place, but that is the market we are in. The "bull market" in stocks continues higher, seemingly unabated. Who am I to fight it?

And where else should we play but in names that continue to benefit from the "work-from-home" and social distancing mindshift that is happening on a global scale? Like Social Media.

It appears no virus can keep people from wanting to stay connected online. And Snap is clearly one of the beneficiaries.

Here's Steve Strazza on the social media space and $SNAP in particular:

Social Media $SOCL is an area within tech that we like a lot right now as it recently resolved out of a 2-year+ base to fresh all-time highs. High momentum and high beta names across all sectors are working very well right now. $SNAP is one of them. Not only that, but this name also falls into the "stay-at-home" category which we've had success with a variety of long setups in recent months. Risk is well defined as prices just broke out of a short-term base and reclaimed their YTD highs. What more could you want in a setup?

I couldn't agree more. And a quick glance at implied volatility reveals low premium levels that rival the lowest for the past year! Feels like an A+ setup for buying some long calls and playing for some potentially unlimited upside.

Here's the Play:

I'm buying $SNAP August 25-strike calls for 74 cents or cheaper. This is a defined risk trade -- the most I can lose is this premium I paid up front to enter the trade. That said, $18.50 (the upper resistance levels in May) now appears to be a good risk management level and if $SNAP shares close below it, then I'll look to close the trade and salvage whatever is left of the premium in these options.

On the upside, I'll take my original risk capital off the table if/when these calls double in value. In other words, I'll sell half of my position around $1.50 and this will give me a free ride on the rest into August. Once we're past August 1, if the calls are in-the-money ($SNAP is trading above my 25 strike), then I'll hold the position for as long as I can -- until any near-term support is broken. If $SNAP is at or below $25/share, then I'll try to close remaining calls for whatever I can get as theta will begin to rapidly erode whatever premium is left.

ASO subscribers with questions on this trade, please send them here.

If you're not one, come try out All Star Options RISK FREE! and leverage best in class technical analysis into smarter options trades.

~ @chicagosean

 

 

 

 

Filed Under