SNAP Could Get Above $10.50 Later This Year

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This morning I am recommending a bullish trade on Snap, Inc. (NYSE:SNAP), the company that owns Snapchat.

SNAP reported strong earnings in February, and it gapped higher immediately after. Since then, the stock has risen above the $9 level. The stock opened lower last Friday, but it ended the session around $9.50.

SNAP looks might be establishing some support, and I think it could head higher later this year.

Better Earnings and Stable User Numbers

SNAP actually managed to beat earnings per share (EPS) expectations by $0.04. While the company did post a loss with EPS of -$0.14, its performance was still an improvement over third quarter of 2018.

And the company maintains a large user base. In the fourth quarter, the number of base daily active users stabilized at 186 million, rather than declining like last quarter.

With the company’s newly rebuilt Android app due later this year, there is a good chance its value will increase as it captures more users.

Resistance in the Near Term

SNAP had support at the $10.50 level in May of 2018, and that level looks like it may act as resistance in the coming months. It’s too early to say, but the stock may have found support at just above the $9 level.

Daily Chart of Snap, Inc. (SNAP) — Chart Source: TradingView

 

I think SNAP will continue to consolidate in this range for the next few months before trying to overcome resistance at $10.50. I’m bullish on the stock long term, but in the near term it may struggle. That’s why I’m recommending a calendar call debit spread.

Using a spread order, buy to open the SNAP July 19th $11 call and sell to open the SNAP April 18th $11 call for a net debit of about $0.60.

Note: There are several April expirations available for SNAP options. Be sure you are selling to open the monthly SNAP options that expire on Thursday, April 18, 2019. Be sure you are buying to open the monthly SNAP options that expire on Friday, July, 19, 2019.

About Calendar Call Debit Spreads

A debit spread is simply a way to lower the cost of buying options, as the option that you sell to open (short) helps offset the cost of the option that you buy to open. Therefore, this call debit spread is a way to lower the cost of buying bullish call options. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a debit spread; contact your broker directly for specific requirements.

With a calendar call debit spread, we want the short option to expire worthless. We will continue to hold the long option until its value increases. In this case we want SNAP to stay below $11 until April 18, 2019. After that, we want SNAP’s share price to increase.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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