Snap Chat reports today AMC.
Today I will like to dive into an earnings play that I have on at the moment.
I sold puts (Sold to open) in this weeks $20 strike for .40c credit to fund the purchase of next weeks $26 calls in a range around .60c debit (Bought to open). So ideally my goal would be to have the stock close over $20 by 5/12 so I can keep the entire premium of .40c. This would give me a net cost of .20c for next weeks 26 calls. Example would be if price hits $27 by next week, I would have a profit around 500% ($1 value for $26 calls ($1 in the money) vs 20 cents paid for combined trade). I would be very happy with that outcome
The ultimate downside would be I would own the stock at $20 if this closes under 20 by 5/12 which i am ok with plus I would lose 100% on the calls next week (which is also fine since I only paid 33c on the dollar (.20c x 100 so $20 per call option)
One of the main factors that i am interesting in here is the sales growth. Right now they are growing about 406% Q/Q which is tremendous for a company valued around 25 billion. Some might consider that the current price reflects this growth but I don’t really believe that. The market really rewards companies who are in growth mode and if they can continue to show this type of growth the price could really move higher from here.
Below you will see the 4 hour chart. SNAP is currently trading within the harmonic pattern CRAB.
As we can see from the above structure of the Crab pattern, that while most of the swing points remain the same, it is the point D which is the main differentiating factor that sets apart the harmonic crab pattern from others like the bat, shark and gartley.
Lets discuss some key levels to help identify this pattern
- typically the AB leg which started on March 17 is allowed to retrace anywhere between 38.2% up to 61.8%. Price topped on March 27 just over the 50% Fib level so Crab is still valid and would pass this requirement
- The BC leg can retrace 38.2% – 88.6% of AB leg so from March 27 to April 18 it found support very close to the 88.6 retracement. Buyers stepped in and saved price from making a new low. Requirement check
- The CD is an extension that can rise all the way up to 161.8% of XA leg and is also an extension of 224% – 316% of the AB leg. If the stock was to hit the full 161.8 extension, SNAP would be valued around $36 per share
Most harmonic traders like to take a position at point D which is why the names are reversed (bearish crab and bullish crab). SNAP is currently trading in a bearish crab but the setup is bullish because price hasn’t topped (early phase). I personally like to get in on these setups once price takes out point B which would be the first higher high coming off a higher low but earnings are later so anything can happen