Snap Inc Bears Are in for a Tasty Treat This Month
It’s more popular than ever with teens, but Snap Inc (NYSE:SNAP) looks like a stock ripe for shorting. For traders in agreement, a rally in SNAP stock is readying to disintegrate. A bear put spread can keep you from holding the bag, just in case an expected trick turns out to be a treat for bulls. Let me explain.
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Snap continues to be big with teenagers these days. The bad news? The staying power of “what’s hot” with a crowd can quickly diminish. People always move onto the “next cool thing,” and that’s a reason to not get overly-excited about Snapchat’s prospects.
Gen-Z’ers might disagree of course. And for the record, I am a Gen-X’er, so maybe I just don’t get it? Maybe. But having said that, I’m not so old that I can’t see SNAP stock isn’t profitable, and in my opinion that’s a concern.
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SNAP stock is also facing continued pressure from the likes of social media elder, Facebook Inc (NASDAQ:FB). Further, with the always real possibility of some new trendy and trending upstart just around the corner, I may be even a bit more scared than simply concerned for SNAP investors.
And then there’s the SNAP stock chart. I don’t want to say “Boo,” but it is that time of year. What’s more, it’s also glaringly obvious the company has been anything but a treat for most investors and it could prove a trick once more for other bulls.
SNAP Stock Daily Price Chart
SNAP stock has done a couple of things technically right for bulls focused on classic trendline analysis.
Back in late August, shares of Snapchat managed to finally break above a long-standing downtrend line that began immediately after a well-orchestrated roadshow and IPO of $17 in early 2017.
Secondly, and since the breakout, SNAP stock has established a couple higher highs and one higher low pivot. The price action is technically on the cusp of establishing one of those sugar-coated up-trends some bulls delight over.
But I’m not a buyer.
Call me a party pooper, but I believe what’s been a technical treat for a few bullish traders since hitting an all-time-low in mid-August, is going to turn into another trick. With the highs of the past week topping out just pennies below the $17 IPO pricing and short-term overbought conditions based on SNAP stock’s Bollinger position/ stochastics reading, it’s time for good scare.
SNAP Stock Bear Put Spread
Reviewing Snapchat’s options and shares at $16.09, I like the idea of approaching SNAP stock using an out-of-the-money bear put spread. One such opportunity is the November $14 / $13 put vertical for 23 cents.
Verticals like this have the ability to vastly reduce risk associated with Greeks, absolute dollar exposure, all while providing plenty of profit opportunity if our forecast shows a bit of foresight.
And with SNAP earnings in early November, those characteristics make for a great way to suit up as a bear.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
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