Shares of Snap Inc. (SNAP) have had a fantastic run in 2019, with the stock more than doubling. But with earnings for the third quarter due out on October 22 at the end of the trading day, the pressure will be on the company to deliver. It seems that some options traders are betting the stock’s hot run will continue.
Despite the bullish view, the options market is also suggesting that this will be anything but a lay-up quarter for Snap and is expecting massive levels of volatility following the results.
Based on the consensus estimates, analysts are forecasting the company to have lost $0.05 per share in the third quarter, which is better than last year’s loss of $0.12 per share. Meanwhile, revenue is expected to have grown at a blistering 46.3% versus last year to $435.54 million. The stock’s strong performance has been driven by increasing subscriber growth and improving revenue per user.
Massive Volatility May Lie Ahead
The options for expiration on October 25 are pricing in a massive amount of volatility for the stock following the results. As of October 17, the long straddle options strategy, which consists of buying a put and a call at the same strike price for the same expiration date, suggests that the stock rises or falls by as much as 14.8% from the $14 strike price. That would place the stock in a trading range of $11.93 to $16.07.
Bullish Betting Rises
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However, the number of open calls at the $14 strike price outweighs the number of open puts by almost 3 to 1, with roughly 6,500 open call contracts to around 2,500 open put contracts. More interesting, is that the number of open calls has been steadily rising over the past month. It would suggest that more traders are betting that Snap rises following the results than falls. For a buyer of the $14 calls to earn a profit, the stock would need to rise to roughly $14.95 or higher, a gain of more than 8%.