Snap (SNAP) Earnings
April 25, 2024
Today after the close, Snap (SNAP) will report earnings. Headed into the announcement, we are holding a half of a position that got hit hard the last time Snap reported results. How we are going to manage this position is a tough decision.
On the one hand, SNAP stock has stabilized since it got wrecked last quarter, and option activity has perked up. Also, I continue to be surprised by the fact that our August 17 calls are still worth $0.60. Essentially there is a bid to upside calls … though for what reason I’m not quite sure (Maybe the worst has been priced in? TikTok legislation? Takeover?)
On the other hand, SNAP seems to bomb on earnings every single time, and should that happen yet again tonight, there is no way our calls won’t get hit hard. Also, best-in-class peer Meta (META) is lower by 11% today following earnings, which doesn’t bode well for the sector.
I am going to hold my position through the event tonight … though to be perfectly frank, I don’t have high confidence in this decision. But with only half of a position and limited downside to our calls, I am willing to take the “gamble” that expectations are so low for Snap, that maybe, just maybe, the company can exceed those low expectations.
SNAP - With the stock trading at 11, the options market is pricing in a move of $2.50 this week, or 8.50 to the downside and 13.5 to the upside.
Open interest is skewed bullish on a ratio of 2.1:1 call vs. put.
Skew is pricing in extreme downside risk and upside interest.
Freeport McMoRan (FCX) Earnings
April 22, 2024
Tomorrow before the market open, Freeport McMoRan (FCX) will report earnings. Headed into the announcement, we are holding a final third of a position having taken partial profits twice as the stock moved higher.
With profits in the bank and option activity remaining bullish, I am going to hold my position through earnings.
However, if you would prefer to not take the earnings risk, you must sell your position before the close of trade today (for an approximate profit of 30%).
FCX – With the stock trading at 49, the options market is pricing in a move of $2.50 this week, or 46.5 to the downside and 51.5 to the upside.
Open interest is skewed bullish on a ratio of 1.7:1 call vs. put.
Skew is pricing in typical downside risk as well as upside potential.
Weekly Update
April 22, 2024
There is no sugar-coating it, the market, led by the Nasdaq which has fallen for six straight trading sessions, had a bad week. By week’s end, the S&P 500 fell 4%, the Dow lost 1%, and the Nasdaq dropped 6.2%.
Stocks on Watch and What Traders Are Saying
As I’ve written recently, we were fortunate to have our exposure to the market as light as it’s been in years ahead of the market’s decline of the last several weeks. And on top of that, we have been hiding out in FCX and GDX calls and QQQ puts, which were our last three purchases.
Now that isn’t to say it’s been all good. Our NVO trade hasn’t worked yet, TSM got nailed last week (though we only own a final third of a position) and HOOD and RSP have given up some gains.
But in reality, our portfolio has held up spectacularly well of late, which means we have the flexibility to add earnings season winners that are going to emerge in the weeks to come. That brings me to …
WFC rose marginally the day the stock reported earnings, however since then the stock has looked spectacular and broke out to a new 52-week high last week even as the market was under pressure.
Also, option activity has been very strong in WFC and several financials, and because of that, I am very intrigued.
Next up is another financial play in AXP, which soared on earnings last quarter and then in the months to follow ground higher, and on Friday the stock broke out to a new high following earnings.
I like the look of WFC and AXP a lot, and we may get involved in the days to come if the market can stabilize, and turn higher.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18.70, or marginally higher on the week. This slow and steady grind higher in the VIX is something I’m keeping an eye on, though to be fair, the VIX is not yet signaling massive panic while the indexes have fallen approximately 5% from their recent highs.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday – 5
Friday – 5
Events for the Week to Come
As if there wasn’t enough to be “worried” about this week following last week’s nasty market decline, traders this week will continue to keep an eye on the Middle East, a major inflation data point on Friday via Personal Consumption Expenditures (PCE) on Friday, and 20% of the S&P 500 reporting this week, including MSFT, GOOG, META, TSLA and more.
Open Positions
Freeport McMoRan (FCX) November 46 Calls – Despite the market pulling back last week, FCX remains in striking distance of its 52-week high, and option activity remains very bullish. Our trade is in terrific shape.
Gold Miners ETF (GDX) January 33 Calls – Much like my write-up of FCX above, GDX looks rock solid and our calls are in good shape … though of note, gold is down 2% this morning so the GDX may also come under some pressure today (maybe).
Robinhood (HOOD) January 15 Call – There is no question HOOD has fallen some from its breakout of three weeks ago. That being said, the pullback has felt normal given the S&P 500’s decline of approximately 5%. Earnings will be reported on 5/8.
Novo Nordisk (NVO) September 135 Calls – NVO made a new recent low last week, though of note, the declines have been slowing down (I guess that’s a positive). Regardless, the company will report earnings on 5/2, which will likely be a make-or-break for our position.
Palantir (PLTR) May 22 Covered Call – Rarely do I pat myself on the back, but the move to sell our PLTR April calls and then roll into a covered call was absolutely the right move as the stock has pulled back hard since that position transition.
What I mean is, if we had held our April calls, those options would have been hit hard recently, and instead, we are holding a covered call that can much better handle the stock’s decline.
Permian Resources (PR) April 15 Covered Call – PR closed above the 15 strike on Friday, which means today we no longer own a stock or call position. This trade worked out perfectly as we made our full profit and collected the dividend.
Equal Weight ETF (RSP) June 158 Calls – The RSP continues to be under pressure, and I am heavily leaning towards exiting this position and moving the cash into fresher ideas (perhaps WFC or AXP).
Snap (SNAP) August 17 Calls – My plan last week was to exit our SNAP calls as the stock had shown zero signs of life. Luckily that may have changed last week as the stock moved higher and call buying was very strong throughout the week, including this call buy from Thursday:
Thursday – Buyer of 8,500 Snap (SNAP) May 15 Calls for $0.57 – Stock at 11.75
Taiwan Semiconductor (TSM) September 130 Calls – TSM stock got whacked last week along with its semiconductor peers. Let’s see how the stock reacts early this week … however, if it continues to fall, we will sell our last piece of our trade. Though of note, a trader on Thursday bought this call position:
Buyer of 8,000 Taiwan Semiconductor (TSM) June 135 Calls for $7 – Stock at 134
Nasdaq ETF (QQQ) November 430 Puts – For better or worse our QQQ puts are working very well as the Nasdaq has fallen quite dramatically of late. As of the close on Friday, our puts are now at a potential profit of approximately 40%.
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