Tech unicorn and recent IPO Snap Inc (NYSE:SNAP) is watching more folks disappear following a disappointing — and even ominous — first try at the earnings confessional. SNAP stock is off more than 20% in Thursday’s premarket trade, easily sending the stock down to all-time lows.
The question you always have to posit after this kind of dip: Is Thursday’s reaction overblown? Or, could Snap be on its way toward a disappearing act of its own?
Let’s look at the evidence on and off the charts, then decide if SNAP stock is worth consideration by bulls, bears, options hedgehogs or absolutely no one.
Oh Snap! By the Numbers
The lack of profits in last night’s report lacked surprise. But all the other negatives were enough to send Snap cratering in the after-hours session. The key number: Sales — which did ramp up compared to the year-ago period, hitting $150 million — still missed by 5%.
Equally important was the shortcoming in global daily active users (DAUs), which at 166 million fell short of the mark for 167.3 million. It’s trending in the wrong direction sequentially, too, and when you’re the year’s most talked-about IPO and expectations are for a beat … well, let’s just say that the reaction is exactly what it should’ve been.
Not helping optimism regarding SNAP stock is rival Facebook Inc (NASDAQ:FB). The social media kingpin has been cutting into Snap’s market share by successfully offering many of the same and most popular features — once unique to Snapchat — to its own users.
Snap Options Pricing
In front of the Snap earnings report, implied and underlying volatility had seen a widening of their spread. Premiums firmed up with 30-day IV nearly double actual stock volatility that has continued to flirt with all-time lows near 40%.
The disparity is hardly surprising and in position to converge beginning with Thursday’s session.
If you look closer at prices, Snap was at $23 before Wednesday’s close. The at-the-money 12 May $23 weekly straddle market indicated that traders expected SNAP stock would remain within an approximate range of $21 to $25 into Friday’s expiration based on one standard deviation. The math behind this calculation is based on implied volatility of 36% with four trading sessions remaining.
Of course, with Snap trading near $18, we can say the bulls weren’t the only traders who got this earning’s price action woefully wrong.
SNAP Stock Chart
Snap doesn’t have much of a chart given its short time as a publicly traded company. Still, we can learn a few things by checking out the company’s technicals.
Thursday’s expected price action — denoted by the highlighted “X” — further confirms the stock’s overall, no-doubt bearish persona.
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Prior price action had been more or less bearish. Having said that, following a bearish article on April 24, shares did manage to hold a higher low and proceed to trend higher by about 10% over a couple weeks.
Shorter-term, bulls could have made decent profits if positions were closed. But more important is what SNAP stock failed to do — namely, clear a key technical warning. The fact that price action fell below the public-opening low of Snap — despite numerous bullish analyst calls from, ahem, mostly firms underwriting shares — held our attention, and our respect.
So, where does Thursday’s anticipated bearish gap leave Snap investors?
With new all-time-lows, a couple Fibonacci extension levels have been fulfilled. That could be good for bullish contrarians in some instances.
But it’s our view that the lesser price history weakens the case for that style of play.
Even if SNAP stock rallies/recovers after the open, I don’t see a meaningful, longer-term low in the cards. Nevertheless, I’d definitely look to cash out of the previously discussed May $20 / $18 bear put spread. The vertical should be good for a double or better, and as conditions and our call and put markets allow, options hedgehogs can look to reload in SNAP.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives 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.
