Social Arbitrage Can Be Real

Hi Shoppers!

Today I am going to recommend a call spread in SNAP which is Snapchat, the communication app all the kids use and prefer over regular texting.  I have to admit, I had to have Grant give me a tutorial on what it does, how it works and why the kids like it so much.  

Which was awesome because he actually spent about an hour explaining it all to me and we had a great time going through the funny filters with our picture together.  (Great way to spend quality time with a teenager you never see!) 

One huge difference between Snapchat and texting is you don’t  need someone’s phone number to send them a message.  

Once you sign up,  it shows you a list of potential friends then you can select whomever you would like to message.  He says it is also faster and easier to message someone.  

From what I see Grant doing, the kids just like to send quick pictures of themselves that disappear right away.  (There is also a  Snap Map which shows a map of where in the world all your friends are, which is kind of cool. )

It was also fun creating my Bitmoji and choosing all my features (no gray hair and no wrinkles!)…including my outfit.  I know we can do this on our phones, I just never took to the time to play with it.

Of course, I made myself look better than I do in real life.  That is the fun part!  Although, my posture doesn’t look that good. 

Wait, I just received a request from Enzo Brasile…?  Why would someone do that?  Grant!

So why do I care about what my son and all his friends are using these days??

Well its easy…

There’s money to be made!

A legendary investor named Peter Lynch used to use this kind of investing style of investigation himself. Today some people have become famous for it through whats called “social arbitrage.”

SNAP announced earnings on Wednesday and the stock went from $28.45 to $35 and closing on Friday two cents off the high at $43.17, that is up over 50%. Without getting into all the revenue figures and all that, which you can easily find online, I believe SNAP is going to trade higher.  

Let’s start with the implied volatility of the options compared with the historical volatility of the stock.  SNAP options IV(implied volatility) is 62.49 and the stock historical volatility is 96.69.  I like buying options that have a lower IV than the stock’s HV.

Looking at the options chain, I like the Nov20 expiration which is the regular monthly expiration and therefore has more interest creating more volume and tighter markets than the weekly expiration options.

(Hange with me here as Im gonna drop a few numbers on you…)

I like buying the Nov20 $44.50 calls with an IV of 60.56 and selling the $50 calls with a 64.37 IV.  That is paying $1.40 for the 5.50 point spread.  

Since SNAP has made such a huge move, I will keep my loss target price close at $1.05 which is 25% and I would take a profit at $2.00 area or 40+%.

I tell you this for a teachable “pit moment” – Remember, the biggest part of profitable trading is discipline:  sticking to your trading plan that you started with on the outset of your trade entry.

I had to do this recently with my AMGN trade:

Unfortunately, AMGN has traded outside that $262-$232 range and traded below $230.  I should have called a close below $232 on the stock instead of $230 and would have saved a bit of that loss.  I closed the call spread down 60%, more than it should have been. Even Pro’s can forget lessons from time to time. 

Thanks for reading…See You Next Tuesday!

Licia Leslie

P.S. – I would like to invite all of you to Mark’s special encore webinar taking place tomorrow, Tuesday at 12 PM EST.  If you haven’t already heard, he has a phenomenal new product out called Little John which tracks what all those Robinhood traders are glombing onto next and takes advantage of it with profitable option trade ideas.  His first trade made 27% in one day!  Check out Little John and See Mark use it live!

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