Snap Inc Is Not Popular But the App Is — Profit Long and Free

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Snap Inc (NYSE:SNAP) stock may be out of favor, but judging by how my 16 year old and his friends spend half their day on Snapchat, the app is still alive and kicking.

SNAP Stock: Snap Inc Is Not Popular But the App is -- Profit Long and Free

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Investors loved it at the IPO, but since then, SNAP stock has lost half its value. This is not the first time a popular application company has gone public and its stock faltered. Facebook Inc (NASDAQ:FB) was one that recovered after the dip and thrived. Proper management teams usually deliver the goods.

Twitter Inc (NYSE:TWTR) also fell after a strong start out of the IPO gate. Unlike FB, it never recovered.

But there is hope, and not just from the technical signals. The cheaper it got, the louder the whispers of a buyout became. And therein lies my opportunity.

Just like TWTR, the app is undoubtedly popular. Management execution to monetize this beauty is failing. Make it cheap enough and someone will buy it. The list of who could is long. Companies can borrow cheap money or use their inflated stock prices as currency.

Since I am not a sucker, I will not buy SNAP stock and hope that the buyout happens. Those who did this with TWTR were mostly frustrated. Instead, my strategy there was to sell puts into fear on dips and I plan to do this with SNAP.

Unlike TWTR’s year-to-date greens, SNAP is down roughly 50% for the same period. Technically, it’s also looking ugly. Stocks that bounce along a floorboard are in danger of falling through into new lows. In this case, the all-time low is so close below that it could act as a magnet for investors.

The lower high trend testing the floor is what is worrisome. But if it holds, then it could serve as a platform for a springboard effect.


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Since fundamentally I see no tangible value in SNAP, I will use options where I can leave plenty of room for error. In addition to the SNAP-specific woes, I have to worry about the fact that markets in general are extended into all-time highs. If we correct there, SNAP will set much deeper lows.

Fallen-star stocks that are out of favor like this are scary to catch. But going long this one is a snap.

SNAP Stock Trade Idea

The Bet: Sell the SNAP Jan 2018 $11 put and collect 45 cents per contract to open. Here I have only a 70% theoretical chance of success. Otherwise, I will accrue losses below $10.55. If successful, this would yield 4% of the stock value in synthetic dividend with no money out of pocket.

Selling naked puts even on a low-cost stock carries big risk. Those who want to mitigate that risk can sell a spread instead.

The Alternate Bet: Sell the SNAP $11/$10 bull put spread where the risk is much smaller. Yet if the price stays above my spread then it yields 25% on risk.

Ultimately, regardless of how careful I am, investing in stocks is fraught with danger, so I never risk more than I am willing to lose

Get my newsletter for free here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/snap-inc-snap-stock-not-popular-but-app-is/.

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