Snapchat – Lessons

Snapchat – Lessons

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About five weeks ago I picked up SNAP for a short term trade. I wrote about it here . I made a few mistakes with this trade.

Mistakes 

  1. I had bought the stock at $17 per share and had watched it run up to almost $18 – choosing not to sell at this point. Greed can at times mess up short term positions. At that time I didn’t realize a key event that was on the horizon for SNAP.

  2. The key event that was on the horizon was insiders would be able to sell their shares starting from July month end. When a company goes trough IPO – it is normal practice to put restrictions on existing shareholders from selling their shares. They usually can not sell their shares on the public market until a specific time period has elapsed. This is to prevent over flooding the market with shares .  A large amount of shares came onto the market at the end of July and another large amount is expected on Aug. 15.  If I was aware of this vesting – I probably wouldn’t have picked SNAP for a short term trading candidate. My mistake on not doing enough research even on a short term trade  !

  3. Another item I was aware of but didn’t give enough attention to was how much more popular Instagram live video is vs SNAP. Many time when I am trading companies whose products I use – I give some weight to how much I like the product or how much the people I know like it. Example of this is my investment in Lululemon.  Before buying SNAP I did an informal survey of my friends and family in the age range of 16 to 30  and most of them appeared to be using SNAP daily. The question I didn’t ask at that time but asked latter was if they can choose between SNAP and Instagram which one would they pick . Every single person choose Instagram over SNAP.

  4. I also didn’t walk away with a loss – when my $17 position suddenly dropped to a $15.47 position. That would have left me with a 10% loss on my position. Which is not bad given I have been recently making 10 o 15% gains in other positions. As most people I have always struggled with walking away with  a loss – this is something you have to be comfortable with if you choose to do short term trading !

Risk Mitigation 

  • I still own SNAP shares – today it has been trading in the range of $13.24 o $14.06. I am holding  SNAP because I believe they have a fighting chance in the social media company space ( even though they call themselves a camera company ) .

  • They have two major upcoming events that they need to get over without too much loss – Earnings report on Aug . 10th and additional stocks becoming available for sale on August 15th. I think if they are able to get through these two events – they have upside potential.

  • Just to help me sleep better and to reduce the amount of cringing I have to do when I look at my portfolio  – I bought  SNAP put options that expire on Aug. 18th with a strike price of $13.  This should protect me against any sudden and large drop in the price of SNAP.

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