I had bought a Snapchat put on Aug 7th, 2017 to offset the downside risk of my equity long position. Especially to protect it against large possible downward movements last Friday – when SNAP’s second quarter earnings came out.
I paid $505 for a put contract for 500 shares with an Aug 18th expiry rate and a $13 strike price. The $505 is the premium I paid for the downward protection. I mainly bought it to offset the risk of a deep drop – the risk that the stock might drop to $8-9 range .
The earnings results were not considered positive and many analysts cut their target price. The drop in the price was not steep as I was expecting. It hovered between 10 to 15% drop and finally settled on a 15% drop in price.
I sold my put option. Initially my plan was to hold it till Tuesday – when additional SNAP shares will be available for sale, however given options drop in value as the expiry date nears and investors usually step in right after a large drop in price I sold my put option to make some money off that option.
I sold it for $666 . I made a 32% return on my options !! Only if I had created a larger position ! Easy to say this in hindsight .
This trade has increased my interest in options. I still believe SNAP will do better in the long term. As such I have bought an Oct 15 2017 call with a strike price of $15 . Will monitor closely and close out the call or long position if there is any significant developments between now and Oct 15.