Snap Inc. (SNAP) a.k.a. Snapchat options have been trading for about a week, so let’s take a deep dive to see what the story is.
First things first: Snap options are fairly liquid. The spreads on most contracts are pretty reasonable.
As with all new issues (especially volatile high-beta tech names), the options are expensive, with implied volatility readings in the 47% – 60% range, depending upon the strikes/expiration.
It looks like traders expect earnings to be reported the week of May 19.
We know this because that week’s series has the highest implied volatility readings.
So do you know what is an EXTREMELY valuable piece of insider info?
Snap’s exacty first earnings date.
Because for the options expiring on the week of earning, implied volatility (and thus option prices) will skyrocket.
I’d be shocked if they didn’t go over 100% for the week of earnings.
For example, the $20 calls expiring May 19 are going for about $1.95, with implied volatility of 60%.
Let’s imagine a hypothetical scenario where Snap says today that earnings would be announced on May 18.
If implied volatility went up to 100% from 60%, all things being equal, the price of that $20 call would go up to $3.18! (Number calculated with CBOE’s options pricing calculator. Please note: this only holds true for today, since options prices are heavily impacted by time to expiration and other factors)
So keep your eyes peeled for the announcement — there could be money to be made if you are very, very fast. (as in able to place orders in seconds)
One thing that really surprises me is that there isn’t an especially large put skew in Snap options.
A large put skew means the put options are very expensive compared to the calls.
Typically, hot new issues that are heavily shorted (which describes Snap to a T) have very high put skews.
This is because when stock is hard to borrow (common with heavily-shorted stocks), demand for puts goes way up because traders are desperate to get in.
Now, there is a put skew in Snap options, but it’s just a few percentage points here and there — not nearly as big as what we’ve seen with stocks like TWLO, FIT, and GPRO.