Interesting SNAP Put And Call Options For September 12th

For Snap Inc. (SNAP) stock, the article outlines two options strategies: a cash-secured put at the $9.50 strike, offering an 8.11% return (68.80% annualized) if it expires worthless (58% probability) and an effective share acquisition cost of $8.73, and a covered call at the $10.00 strike, yielding a 10.28% total return if the stock is called away or a 7.50% boost (63.68% annualized) if it expires worthless (50% probability). These strategies highlight opportunities for investors to generate income or acquire shares at a discount, leveraging the stock's current price of $9.73 and implied volatilities of 79% for puts and 76% for calls.

Analysis

The analysis focuses on two specific options strategies for Snap Inc. (SNAP) designed to leverage its high implied volatility for income generation or discounted stock acquisition. The first strategy involves selling a cash-secured put with a $9.50 strike, which provides the seller with a $0.77 premium. This establishes a potential acquisition cost basis of $8.73 per share, a discount to the current $9.73 price, or yields an 8.11% return on cash (68.80% annualized) if the option expires worthless, an event with a 58% probability. The second strategy is a covered call at a $10.00 strike, yielding a $0.73 premium. This approach offers a 10.28% total return if the stock is called away, or a 7.50% income boost if the option expires worthless, which has a 50% probability. A key driver for these strategies is the elevated implied volatility in the options (79% for the put, 76% for the call) compared to the stock's 65% trailing twelve-month historical volatility, indicating that the market is pricing in a higher probability of significant price movement than has recently been observed.

Key Decisions for Investors

• Investors bullish on SNAP and seeking to acquire shares at a discount should consider selling the $9.50 cash-secured put, which offers an effective entry point at $8.73 or generates an 8.11% yield if the stock price remains above the strike.
• Current SNAP shareholders aiming to generate income could sell the $10.00 covered call to potentially earn a 7.50% premium boost, but must be willing to cap their upside and sell their shares for a 10.28% total return if the price exceeds the strike by expiration.
• Traders should recognize that the attractive premiums are a direct result of implied volatility (76-79%) exceeding historical volatility (65%), presenting an opportunity but also signaling that the market anticipates greater price swings than in the past.
• Given that this analysis is purely technical, any investment decision should be supplemented with a thorough review of Snap Inc.'s business fundamentals, as these options strategies do not hedge against a significant adverse move in the underlying stock.