Option Trade
Snap Inc (NYSE:SNAP) Calls
  Wednesday, September 06, 2017

** OPTION TRADE: Buy the SNAP JAN 19 2018 15.000 CALL at approximately $1.75. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

This year it seems that tech stocks are constantly among the hottest names on the market, as many stocks in the tech space feature attractive growth potential. But even so, things have cooled down a bit as the year has progressed.

Although tech stocks were all the rage earlier this year, investors have become more cautious over the last couple of months. Thankfully this "cooling down" has created many good buying opportunities in the tech space.

Specifically, Snap Inc. (NYSE:SNAP), formerly Snapchat, Inc, a camera company, is one of the best names to buy in the wake of this summer's tech stock pullback.

Snap has retreated significantly in the past three months, partly due to legitimate worries about fundamentals and partly due to macro concerns. But even so, has some powerful positive catalysts on the horizon, making it very attractive for this options trade.

Influencing Factors

Snap stock has tumbled from nearly $22 at the end of May to under $15.

But the company's flagship website, Snapchat, has overtaken Facebook among both 12-17 year old's and 18 to 24 year old's in the U.S., research firm eMarketer reported recently. Although Facebook Inc's (NASDAQ: FB ) flagship platform and Instagram combined still have more than double the number of Snapchat's users in the 18-24 demographic, SNAP now has an impressive 24.4 million users in that age range.

However, in the 12-17 age range, Snapchat was much closer to the 18.7 million combined total for Facebook and Instagram with its 15.8 million users.

eMarketer predicts that SNAP's overall user base will jump 25.8% this year to 79.2 million. In the wake of this data, it's clearly only a matter of time before many more marketers start to launch ads on Snapchat. After all, there are a significant number of advertisers that want to sell products to teenagers and young adults.

Additionally, some companies, realizing that these young people will at some point grow into major breadwinners; will see the efficacy of starting to win their hearts and minds now.

But after its recent retreat, SNAP has a market capitalization of just $17.6 billion, which is equal to around 4% of Facebook's valuation. That's an imbalance that is going to change sooner or later, probably mostly through the appreciation of Snap stock.

Analysts and Hedge Funds Opinions

Though Snap has certainly had a rocky beginning following its initial public offering, Drexel Hamilton analyst Brian White parallels the popular Snapchat app parent company’s momentum to a fellow mammoth competitor: CEO Mark Zuckerberg’s brainchild, Facebook.

Believing Snap’s hurdles post-IPO match that of Facebook’s challenging start back in 2012, the analyst finally sees that “The yellow specter is starting to snap out of the Facebook funk.” In fact, White pinpoints “strong upside potential over the next 12 months” for this contender vying for king of the social media court.

Therefore, the analyst maintains a Buy rating on shares of SNAP with a $30 price target, which represents a 111% increase from where the stock is currently trading.

White highlights, “Snap continues to grow at a rapid pace, introduce new innovations, roll-out compelling content and remain true to its core base of millennial followers. However, the company has wrestled with a constant narrative around Facebook competition, combined with the shift to increased automation on its ads platform and overly high Street estimates given no financial guidance.”

For those who fear Facebook will be the competition that will unhinge Snap’s prospective empire, White argues that this simply is not the case: “Since Snap’s IPO, there has been an ever growing narrative that Facebook (and related properties) is marginalizing Snapchat; however, Snapchat continues to show well with young millennials as highlighted in a recent comScore report. At the same time, we believe Snapchat’s addressable reach is more important to advertisers than DAU, casting Snap in an even more favorable light relative to Facebook (and related properties).”

Especially ahead of the big iPhone 8 release coming up from Apple, the analyst concludes believing excitement circling the field of augmented reality (AR) will only bode positively for Snap and “open up new opportunities” for this valuable tech player.

As well, Cantor Fitzgerald's Kip Paulson upgraded the shares to "overweight" three weeks ago, encouraged by the low stock price and healthy projections for continuing growth in average revenue per user. Aegis' Anthony -- the same one concerned about Snap's ability to thrive in the ad recession -- had boosted his price target from $14 to $15.

There was also news that week that NBC News' Stay Tuned -- the first major original shot on Snapchat Discover -- attracted more than 29 million unique viewers in its first month.

The following data from Nasdaq illustrates institutional ownership in Snap Inc. (SNAP) as of June 30, 2017, the most recent date for which the ownership data is available.

  • The company's largest institutional investor and one of the largest active management investment firms in the world, T. Rowe Price (TROW), raised its stake in Snap by more than 9 million shares, or one-third, to 38 million shares, which amounts to $540 million or slightly more than 3% of the company's $17 billion market cap.
  • Coatue Management, a successful technology sector hedge fund that invests in public and private equity markets and one of more than 30 "tiger cubs," increased its stake in Snap to nearly 22 million shares, which amounts to $312 million or nearly 2% of the company.

Harvey’s Options Volatility Indicator


According to research firm eMarketer’s estimates, Snapchat will be more popular than Instagram and even Facebook in the United States among 12 to 24 year-olds by the end of this year.

Also, according to a new report from comScore, Snapchat is in the third spot in terms of the most popular apps among users between the ages of 18 and 24 in the United States. Instagram lies in the fifth spot in that demography, as the graph above shows. Alphabet’s (GOOG) YouTube and Facebook (FB) occupy the first two spots in that regard.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..


** OPTION TRADE: Buy the SNAP JAN 19 2018 15.000 CALL at approximately $1.75. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.


”Success is simple. Do what's right, the right way, at the right time.”

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Options traders are not successful because they win.

Options traders win because they are successful.