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Snap earnings preview, expected move, directional and neutral spreads.
3 min read

Snap earnings preview, expected move, directional and neutral spreads.

Snap earnings preview, expected move, directional and neutral spreads.

  • Snap (SNAP) reports q2 earnings after the close Tuesday (~4:10pm)
  • Options are pricing an expected move of 12% by this Friday. That is the bulk of the move expected over the next month, which is about 15%.
  • Snap closed higher by about 36% in the day following its most recent earnings (in April)
  • Snap has beaten consensus estimates 7 out of the last 8 times.

The Set-up

Here is the 1 month expected move chart for SNAP, with this Friday's expiration highlighted (11.8%), via Options AI technology:

Last earnings (in April) Snap blew away the expected move and closed 37% higher the next trading day. It has beaten consensus estimates 7 out of 8 times over the past 2 years although that hasn't translated to a consistent reaction in the stock with and even split of 4 earnings moves higher and 4 lower.

Ways to Play

Neutral - The first thing to look at is a neutral position, selling to both the bulls and the bears. Here are two neutral trades setting breakevens at or near the expected move, via Options AI technology. First selling the +21.5/-22.5/-28/+29 Iron Condor:

In this case the risk reward is $56 to make $44. If the stock closes anywhere between 22.5 and 28 on Friday it is a max gain. Any close beyond 21.5 or 29 and a max loss. The breakeven is 22.06 on the downside and 28.44 on the upside.

That trade establishes a range of max profit, for those targeting no move at all, with the stock remaining at 25 selling an Iron Butterfly has max profit at the 25 level with profits trailing off towards the expected move and losses beyond:

Both of these trades are binary, isolating this week and what is likely to be a mostly one day move tomorrow.

Bullish - For those thinking directionally the expected move can be used to help determine strike selection. Here's a bullish price target looking out a bit further in time, to August expiration:

In this case both the August long call spread (+25/-29) and the August short put spread (-25/+21) take advantage of multi leg strike selection based on the expected move. The short put spread is "selling to the bears" and is profitable from 22.57 and higher with a max gain if the stock is above 25 on August expiration. The long call spread has a higher breakeven, but by selling the 29 call at a high upside volatility, is much cheaper than an outright 25 call.

Bearish - The same is true for a bearish target in line with the expected move but the short call spread is at a slight disadvantage due to having to buy the upside call at a similar or higher IV than the at the money call sale:

The long +25/-21 put spread establishes a breakeven at 23.44 in the stock and a max gain at or below 21.

Previously:

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