We’ve been keeping tabs on a stock that we traded successfully earlier this fall. The stock hit our price objective, our spread hit our profit target, and we moved on.
Lo and behold, the stock consolidated around that last price target as we expected, and now after about a month of working through the weak hands, it appears Snap Inc $SNAP is ready to make another run.
Here’s our play from Sept 30 that we exited on October 21.
And here’s where we are now:
Here’s Steve Strazza with some more color on the current outlook in $SNAP:
Last month SNAP registered a breakaway gap above its post-IPO record highs and rallied to the 44 area where it’s been consolidating since.
This level also represents the first Fibonacci extension from the drawdown of its all-time high to all-time low. We believe the recent consolidation is likely to resolve higher, in the direction of the underlying trend. When this happens, we want to own SNAP as long as were above 44 with a target at 68 over the next 3-6 months.
We’re not going to reinvent the wheel today. We’re going to enter a trade similar to the one we entered back in September.
Here’s the Play:
I’m buying a $SNAP April 45/65 Bull Call Spread for as close to $4.75 as I can. This means I’ll be long the 45 calls and short an equal amount of 65 calls for a net debit. This debit is the most I can lose in this trade if it heads south. I chose the April expiration because this lines up best with the timeframe for the move as Steve mentioned above.
Of course, I’ll try to limit the loss if I can. If we see a close in $SNAP shares below $38.00, that will be my signal to close the trade near the opening of the following trading day. Because this is a defined risk position and I’m sizing my position such that I’m comfortable with taking a potential 100% loss on the trade, I will not panic when it’s time to exit. I’ll just follow the plan and work my order.
On the upside, if $SNAP continue to build on it’s breakout and make a run for Steve’s price target, I’ll be looking to exit the spread for a profit when I can so do for about $12.50. This would represent capturing approximately 50% of the maximum possible profit in the spread (if held all the way to expiration) and would be more than a double of our invested capital. I like the sound of that!
If you have any questions on this trade, please send them here.
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