Unusual Options Activity In Snapchat Inc (SNAP)
On Thursday July 21st the Unusual Options Activity filter lit up with over 21 trades in the Snap Inc (SNAP)
Jul 22nd 14.50 Puts.
The average size of each trade was only about 200 contracts and they were being bought for about .64 cents.
Why This Trade Was Unusual
This trade was flagged because of the fact that there were multiple small sweeps and, repeat action of any kind is one of the biggest "tells" when you are tracking UOA. But the most important thing was that these trades were coming pre-earnings. In fact they were hitting the tape just about an hour before SNAP was scheduled to release earnings after the close.
This is one of the small sweeps that came across:
How The Trade Played Out
SNAP reported a bad quarter and the stock tanked in the after hours. The next day the stock gapped down -36%
And the options contracts that were picked up at an average price of .64 cents shot up to around $4.00 and netted the buyers $3.36 per contract for a 525% return in less than 12 hours.
How To Play This Unusual Options Trade
These are not rare occurrences. If you track and trade Unusual Options Activity (UOA) you will see trades like these all the time, especially around earnings. So here are some quick pointers on how you can trade these when you see them on the Unusual Options Activity Scanner
Once you spot these trades with heavy repeat action (and many small trades), then it is clear that someone wants to break up a large order. This alone should get your attention.
Step 1: Identify The Catalyst
You should then try to see what the possible catalyst/reason for the trade may be by checking the news, earnings calendar etc.
Step 2: Choose The Strike & Expiration
Once you confirm the catalyst you need to make sure you are buying the same strike and expiration and it is always good if you can get the same price ( or as close as possible to it) that the buyers got.
Step 3: Set Up Risk Management
Determine your position size and make sure you have a risk management plan. In this case it was an earnings play and the contracts were just one Day To Expiration (DTE). So you need to make sure you understand that this is highly speculative and size your trade accordingly.
In other words you should just assume that the contract can go to zero and only enter the trade with an amount of money that you can afford to lose.
Here is an entire tutorial on How To Trade Unusual Options Activity and I also made this video about Unusual Options Activity so you can learn how to find, setup and execute UOA trades.