Shares of social media company Snap (SNAP) are down 86 percent over the past year. One trader sees room fur a further decline in the months ahead.
That’s based on the March 17, 2023 $6 puts. With 149 days until expiration, 5,656 contracts traded compared to a prior open interest of 293, for a 19-fold rise in volume on the trade. The buyer of the puts paid $0.49 to make the bearish bet.
Shares recently traded for over $10.50, so the stock would need to decline about 40 percent for the option to move in-the-money. With a 52-week low of $9.34, it would also mean a breakdown to new lows for the stock.
Such a move is possible, given the company’s poor performance. While revenue is up 13 percent in the past year, the company has managed to lose over $830 million. Only the company’s relatively strong balance sheet can protect it from a further decline.
Action to take: Shares are likely to trend lower, given the company’s poor performance and market condition. Interested investors can likely get a chance at buying near the 52-week low, if not lower, in the weeks ahead.
For traders, the March puts are inexpensive enough to deliver high-double-digit gains or better on a further drop in shares. A further 40 percent drop from here, even over several months, may be a bit of a stretch. So look to take quick profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.