How To Trade The Snap Earnings Report Using Options

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Snap Inc SNAP is due to report earnings for the December quarter on Feb. 4 after the bell. 

Here are the consensus Wall Street estimates for Thursday:

• Earnings Per Share: $0.07
• Revenue: $852.26 million

How SNAP Historically Moves Before And After Earnings

Source: Marketchameleon.com

In the last three years, SNAP is more likely to trade higher in the one-week, three-day, two-day, and one-day periods ahead of its earnings report. However, the stock has traded lower the day before four of its last five earnings reports. 

The table below shows how SNAP has historically moved the day of its report.

• “Earnings Move” refers to the amount the stock moved from its closing price before the report to its first closing price afterward
• “Opening Gap” refers to the amount the stock moved from its closing price before the report to its first opening price afterward

As you can see, SNAP’s performance immediately following its earnings report is pretty evenly split, however the magnitude of the gains outweigh the magnitude of the losses. 

If You Are Bullish

For bullish SNAP traders, you may want to consider the bull put spread strategy. 

The bull put spread will profit if the stock rises before expiration. In the case of the trade outlined above, buying the $45 puts and selling the same amount of $48 puts, with both options set to expire Feb. 12 has an 87% chance of profitability based on historical patterns, according to Market Chameleon,

The payout diagram is as follows:

For this strategy, the maximum gain will occur as long as SNAP is at or above $48 at expiration. In this situation, the strategy would earn $90 ($0.90 x 100) per option sold. 

The maximum loss will occur if the stock is at $45 or below at expiration. In this case, the strategy would lose $210 ($2.10 x 100) per option bought.

If You Think SNAP Will Be Volatile

For traders who think SNAP will make a big move after its earnings report and want to take advantage of a move in either direction, consider the debit iron condor strategy. 

The debit iron condor will profit if the stock makes a big move in either direction into its expiration. In the trade above, selling the $41 puts, buying the $50 puts, buying the $61 calls and selling the $70 calls at the same Feb. 5 expiration has a 53% chance of profitability and 20.5% theoretical edge based on historical patterns, according to Market Chameleon,

Source: Marketchameleon.com

For this strategy, the maximum gain will occur as long as SNAP is at or below $41 or at or above $70 at expiration. In this situation, the strategy would earn $554 ($5.54 x 100) per option sold. 

The maximum loss will occur if the stock is between $50-$61 at expiration, at which time the trade will lose $346 per option bought. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.