Since bursting onto the public scene to great fanfare, Snap Inc (NYSE:SNAP) shares have been a dog. From peak to trough the post-IPO decline hacked 62% off its share price. But every dog has its day, and for SNAP Wednesday was ultra-special.
The social media stock soared 10% on massive volume. The rally completed a two-month bottoming pattern and officially launched SNAP back into an uptrend. This is the best the stock has looked since its May IPO.
It now sits well above both the 20-day and 50-day moving averages, both of which are now rising. Key resistance was shattered in the process adding more significance to the move.
If we look at the magnitude of how much SNAP stock has recovered since bottoming in mid-August, it’s an impressive 42%.
Traders looking for the all-clear to initiate bullish trades just received their signal. While it’s anyone’s guess as to how long the nascent uptrend continues, buyers are undoubtedly in control and the path of least resistance is higher.
That said, $17 is as good a short-term target as any. A move to that threshold will fill the earnings gap from July. It was also an old support level liable to turn into resistance.
Snap Up Profits
Given the magnitude of yesterday’s pop, we could be in for some backing-and-filling in the days ahead as the move gets digested. That coupled with the massive premiums available in SNAP options has me thinking a short put play is the way to go.
The cheap price tag of SNAP stock will keep the cost of the trade small, which translates into a high return on investment.
Sell to open the Nov $15 put for 95 cents. If the stock stays above $15 for the next month, you will capture the max reward of 95 cents when the put expires worthless at expiration. By selling a put, you are obligating yourself to buy the stock at an effective purchase price of $14.05.
If you prefer to sidestep assignment, then buy back the put if SNAP sits below $15 at expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.