Snap Inc Spread Betting and CFD Trading

Snap Inc Spread Betting and CFD Trading



Live Snap Chart and Prices



Why I Have Shorted the Snap Share Price

The chart looks terrible and I’ve had a small £0.50 per ¢ short of the Snap Inc. stock at $14.03.

I.e. with this spread bet I will make £0.50 for every $0.01 (1¢) the stock falls below $14.03 and I will lose £0.50 for every 1¢ the stock moves above $14.03.

Falling Snap Chart


Why Short Snap?

  • trending_downThe last company report showed that growth isn’t great

  • trending_downThe last company report showed limited revenues

  • trending_downJudging by the chart, other investors don’t seem to have much confidence and there are no short-term numbers are due out, i.e. nothing to stem the flow

    A lot of shares could soon hit the market:

  • trending_downFrom this weekend (29/30 July), early investors are allowed to start offloading 400m shares

  • trending_downIn two weeks, staff owning the other ~750m shares are allowed offload them on to the stock market

    Of course, key staff own many of these and won’t dump them all. Also note that key staff took about $1bn during the IPO .They’re probably be OK cash-wise for a few weeks.

  • trending_downLooking through the reports there are another potential 200-250m shares available to employees as potential bonuses / compensation awards as restricted stock units (RSUs). Some of the RSUs may mature soon meaning more shares hit the market.

    Time-wise, this last point is far from clear but it does point to further dilution. You can argue that the dilution is known and therefore already priced in. I’d be less confident of any such counter-argument once the RSUs mature… that’s a lot of shares that could get dumped on the market.

  • trending_downThe average daily volume of shares traded is 18,500,000 and the market is already going down. The extra shares hitting the market could dwarf that.

For a more in-depth look at the +1,170,000,000 shares in-play see Snap’s IPO explained.

Shorting Snap

Where to close my trade? We are well below the $17 IPO level and there are no historic support levels.

If there was a downward triangle formation then we are already through that support.

Snap Downward Trend


Adding an Ichimoku Cloud overlay to the chart shows we are well below the cloud and in classic selling territory. If a price is below the cloud, then the market is deemed to be in a downtrend.

Ichimoku Cloud on Snap Chart


Trade Set-up

This is an unusual trade set up because there would normally be support and resistance levels to help guide my entry and exit points.

Likewise, the company fundamentals are a million miles away from the current valuation, so I can’t go on the fundamentals for my entry and exit points.

  • arrow_forwardI’ve not traded Snap before so I’ve only had a small £0.50 per ¢ trade. Warning – a £0.50 per ¢ trade would be a huge on a $1,000/share like Google but it’s OK on a $14 stock
  • arrow_forwardI’ve set my Stop at $16.50 to give the market plenty of room, i.e. market gaps aside, I could make a 247 point loss
  • arrow_forwardI’ve added a Limit order, aka Take Profit order, at $12.10. This is just above a psychological “whole dollar” level. If that market gets near this level I just want to close for a near 187 point profit
  • arrow_forwardI’m not sure if the market will hit either level but I want to see what happens over the next few weeks as more shares hit the market
  • arrow_forwardIf the share price hits the Ichimoku Cloud I will also close my trade
  • arrow_forwardIf nothing else happens I plan to close my trade around 11/14 Aug unless there is continued selling
For the avoidance of doubt – the above is not advice.


1 August 2017: Short Trade Update

The stock is in a nasty downward channel:

Snap Chart: 1 August 2017
Ouch!

I have tried to pop in and out of this trade, i.e. trying to sell on any price rebounds (I certainly don’t want a long trade).

There has been solid selling on open on a few days… but not every day… and I would have made more if I just kept my original trade.

Anyway, I still have my small short trade and my latest short is at $13.14.

  • trending_downKey Point: As above, there is still plenty of stock that could hit the market in less than 2 weeks.


2 August 2017: New Short Trade

I was £0.50 per ¢ short of Snap.

I’ve put in an order for another £0.50 per ¢ short of Snap at $13.06.

The chart above (see 1 August update) is showing a strong downtrend and more stock could hit the market in 14 Aug 2017.

At $13.10 the market cap is $15.44bn.

Is it a $15.44bn firm? I don’t know.

Could it be a $10bn dollar firm? Still no idea, that’s just an arbitrary number I’ve picked… but if it’s a $10bn dollar firm then the share price should drop to $8.42.

Still aiming for $12.00 but will judge the selling / chart accordingly.

I’m keeping my stops pretty wide, this could be rocky ride.


4 August 2017: Profits, Mistakes and New Short Trades

OK, I got a little excited yesterday and made a mistake after the Limit orders triggered nicely.

The market gapped on the open and then the share price continued to drop to $11.90. That triggered the Limit orders at $12.10 and $12.00 which booked profits on both short trades.

The trade sizes were small but we’ve booked shorts from $14.03 and $13.06 all the way to $12.10 and $12.00 = about 300 point profit. Lovely.

(I did close/open on 1 August and lost about 40 points on that error. School boy.)

The Mistake

After the drop to $11.90 the market was then kind enough to bounce back to $12.50 before I looked at new spread bets.

I got excited and added a new £1 short $12.52 and, when the market was at $12.70, I set an order for a £0.5 short at $12.50, that has triggered.

I’m now roughly £1.5 short at $12.51. I don’t mind increasing my trade size in a bet that’s going my way. Who would?

The mistake was to get excited and just shorting the market. I should have taken a quick look at the chart.

The original downward channel is holding fairly well as a guide.

Tip: Use charts that save your data. I’m using Financial Spreads for this trade and the charts are handy because they save the trend lines. IG and CoreSpreads charts also do this. Others may too.

I shorted in the middle of the channel which isn’t a great place to trade but at least it was a short in a down channel

Anyway, the market continued higher and the net position is still £1.5 short at $12.51. With the market closing around $12.94, i.e. we’re holding a 44 point loss.


Snap Inc Chart: 4 Aug 2017
Stay on target, stay on target…


Next?

I still expect the share price to drop. More stock could hit the market a week on Monday… if you held stock you’d want to cash-in some of that.

Likewise, the poor fundamentals do not show a $15.5bn company.

I expect a rocky ride down. The £1 short $12.52 has a Limit order at 1205 and £0.5 short $12.50 has a Limit order at 1105.

Tip: I like Limit orders just inside/outside psychological support/resistance round numbers so they are more likely to trigger. I don’t mind giving up a few points for that.

Warnings for this Trade

  • warningUS Non farm payrolls are due at 1.30pm today but I’ve got wide stops and so not worried about a spike
  • warningThis is not a quiet market – there was a gap yesterday and 100 point moves up and down in the same session are not uncommon. Keep trade sizes small
  • warningWe’re not expecting new fundamentals from Snap Inc. but if they come out, and they are good, there could be a nasty bear squeeze. Another reason for small stakes
  • warningIf the Snap share price breaks higher out of the channel then it’s time to reassess and close or reduce the trades


7 August 2017: That School Boy Error Comes Back

As covered on Friday, I made a mistake when opening a new £0.5/pt trade at the wrong point. The market then moved against my new bigger trade.

I’ve done the sensible thing and closed the new £0.5/pt trade. But that cost me 100pts i.e. £50 which is annoying.

That’s what happens when you rush into trades.

Still holding a £1/pt short of Snap.


A Big 7 Days for the Snap Stock

It should be a big week for the stock and the theory suggests more selling.

The 4-hour chart with an Ichimoku Cloud overly, see below, shows we are still below the cloud and that suggests a downward trend.

The picture on the 1-hour chart is unclear.

Shorter timeframes suggest the price will be moving higher in the immediate-term. That’s if the market follows Friday’s trend where the bears will have felt an uncomfortable squeezing sensation.

Snap Inc Chart: 7 Aug 2017
Be careful with this one. Be very careful.


Watch Out: Company Data
  • arrow_forwardSnap is due to report on Q2 2017 after the close on 10 August
  • arrow_forwardExpectations are for a loss of 14¢ per share on revenue of $189.2m
  • arrow_forwardPutting to losses to one side, it will all be about the all important growth in user numbers
  • arrow_forwardDon’t forget that on 14 August, 782m shares could hit the market (there’s about 1170m in total). Naturally not all shares will hit the market but I’d expect some to (see above)
Time to be very careful with this one. If you must trade, keep trades small.


10 August 2017: Snap, Crackle and Flop?

The Q2 report is due after the market closes tonight.

Taking another look at the poor Q1 numbers, one of the big headline numbers was the $2.2bn loss but $2bn of that was stock-based compensation so let’s take that out as it shouldn’t apply to Q2.

  • arrow_forwardLosses
    • infoQ1 2016 = $104.6m
    • infoQ1 2017 = $208.8m (or $2208.8m with stock-based compensation losses)
  • arrow_forwardRevenues
    • infoQ1 2016 = $38.8m
    • infoQ1 2017 = $149.6m
  • arrow_forwardDaily Active Users (DAU)
    • infoQ1 2016 DAU = 122m
    • infoQ4 2016 DAU = 158m
    • infoQ1 2017 DAU = 166m
  • arrow_forwardAverage revenue per user (ARPU)
    • infoQ1 2016 ARPU = $0.32
    • infoQ4 2016 ARPU = $1.05
    • infoQ1 2017 ARPU = $0.90

Q1 Summary

  • trending_upDaily Active Users grew from 158m in Q4 2016 to Q1 2017 but only by 8m and that’s only 5% growth quarter-on-quarter. A unicorn needs more than that.
  • trending_downThe Average Revenue per User was $1.05 in Q4 2016 and that dropped to $0.90 in Q1 2017.
  • trending_downLosses are large and growing.
  • warningHere is the Snap Q1 2017 report – read it for yourself but I don’t like that they also use “Non-GAAP” accounting. There’s enough bullshit in company reports and they aren’t using full GAAP (generally accepted accounting principles) measures. This can work both ways, i.e. hiding crap in old reports but also misleading investors in new reports. Bears beware!
It’s not that Snap is a bad company, or Snapchat is a bad product, the issue for me is the incorrect valuation of the company.

As well as the above:

  • trending_downFacebook’s Instagram has copied a number of Snapchat features. The Instagram version of Snapchat stories has only been live for a year and already has 250m daily users.
  • trending_downShareholders don’t get normal voting rights and so Snap Inc. isn’t eligible for the S&P 500 index. It’s a similar story with the FTSE Russell 2000 index.

    The upshot is that many of the tracker funds won’t need to buy the Snap stock.

Warnings Before You Place a Chunky Sell Trade
The picture is gloomy and it means that’s very difficult to see how Snap is a $15bn company.

However, before trading, the bears should also think about:
  • warningThe chart is showing some resistance around the $13 level. Does someone know something we don’t?
Snap Inc Chart: 9 Aug 2017
Resistance?

  • warningGood Q2 numbers could lead to a bear squeeze.

    Don’t forget what happened with the Netflix Q2 data when that was released last month. The Netflix share price jumped 14% higher… including a very nasty 8.5% gap higher.

  • warningWhatever happens, this can be a very volatile stock. The share price bounced from $11.90 on Thursday to $14.05 on Monday. That’s a vey scary 18% bounce on no new data.

  • warningThe lockup on 782m shares expires this weekend, i.e. the lockup to prevent some shareholders from dumping their stock.

    We’ve covered this story above and it should a negative for the share price. However, it’s also a well known piece of information and could be priced in.

  • warningIn addition to the above, don’t forget that some of the key shareholders cashed in $1bn in stock when Snap IPO’d. Those key shareholders may not be in a rush to dump the rest of their stock.


10 August 2017 Health Warning: Unexpected Chart Data!

I really don’t like yesterday’s 5 minute chart that is showing a lot of buying @ $13.5.

With the average daily volume at 22m shares, it’s not the easiest stock to manipulate.

Snap Inc - 5 Minute Chart: 9 Aug 2017
5 Minute Chart for 9 August 2017

If you open a 5 minute snap chart and scroll through then you can see other periods of similar buying once the market has been open a few hours. But it’s still not a nice thing to see when you are short.

More Warnings for Bears

  • warningIf someone is buying a lot of stock at $13.50 that bests my tiny £1/pt short.

    My short might be right based on the fundamentals.

    However, it’s like a game of poker when you have a good hand that you just need to give up vs a player who has a lot more chips. Sometimes it’s best to take a small loss and play the next hand.

  • warningThis is not a sell and hold – I was planning to close next week. I don’t want to hold this trade and wait for fundamentals improve or for the Snap to get a big offer, e.g. last year’s rumoured offers from Google

  • warningDo the insiders know something we don’t? Probably. But is it that good?

  • warningWhat if everyone is just piling into the stock ahead of the earnings because they are excited about a tech stock and not looking at fundamentals? The weight of the market could simply take the stock in the wrong direction. After all… it’s already at “$15bn company” despite quarterly losses of $200m. The weight of the market can easily ignore fundamentals.

Warnings for Bulls

The Q1 numbers were poor to say the least. On a fundamental level it’s not a $15bn company.

Let’s say it’s a $1bn company and the share price is adjusted accordingly… that’s a 93% fall…! Please be careful.


My Next Trade?

I am wary about my current trade.
  • infoIf there is still a lot of buying today and/or more consistent buying at $13.50 then I will close half my trade, i.e. close £0.50/pt for a loss.

  • infoIf there are new rumours before the close, I may close £0.50/pt or the whole £1/pt trade.

  • infoI will take a look at the price action at the open. If there is strong buying then I may close £0.50/pt or the whole trade and take a look at opening a new £0.50/pt short before the close.

  • infoI am still considering the risk/reward ratio of more poor data driving the share price down vs risk of good data and the market gapping higher.


10 August 2017 (8pm UK time): Fold!

The Snap stock is still stuck around the $13.50 and that makes me uneasy going into tonight’s earnings.

Closed £0.50/pt of my short at $13.54 and taken a £50 loss on that.

That only leaves me £0.50/pt short of Snap Inc. Adjusted Stop Loss to $15.60 and Limit Order to $11.10.

I still think the Q2 data will be uninspiring but playing it safe and reducing my risk.


11 August 2017: Q2 and the Next Move for My Snap Spread Bet

Snap Q2 Numbers
Snap’s Q2 highlights are not ‘highlights’ for any shareholders or anyone long of Snap.

  • warningDaily Active Users, i.e. the main KPI for growth, only grew 4% quarter on quarter
  • warningRevenues of $181.7m
  • warningLosses of $443m
We’ve taken a longer look at the Q2 numbers here: Miserly Growth Not Helping Q2 2017 Numbers for Snap

Or… you can read the official Snap Q2 2017 numbers here.


My Next Spread Bet on Snap Inc?
The above numbers still don’t suggest a $15bn company.

The growth number is showing a continued slowdown in growth and yet they burn through cash.

It’s a shame I closed £0.50/pt short of Snap Inc. yesterday but that was prudent given all the strange buying at $13.50.

I’m now only holding a £0.50/pt short of Snap with a Stop Loss at $15.60 and Limit Order at $11.10.

I’m currently planning to see how the market reacts at the open.

I’d expect a sharp fall and some volatility on the open.

If there’s continued selling then I might take a new £0.50/pt short but I’ll probably keep tight stops on that.


Out of Hours Trading Gives Useful Guide on Snap Open

IG has a useful out-of-hours market on Snap. The spread can be wide but that can be acceptable. Worst case it’s a good guide for the open.

The IG Snap “all sessions” market closed at $11.87 – $11.94.

That’s a very large 13.5% fall.

It’s tempting to take that kind of level on the open, i.e. close for a nice profit.

… and then sell again if there’s a bounce.

(don’t forget, more stock could hit the market on Monday).


14 August 2017: Time to Think About Exiting this Market

As discussed, the IG Snap “all sessions” market which closed on Thursday at $11.87 – $11.94 was a pretty good guide for the Snap open on Friday.

The main market gapped lower and opened at $12.01. It then seemed to trade in a cautious and tight range between $11.80 and 12.30.

I closed my £0.50/¢ short at $12.06 for a +40 point profit. And then, as discussed above, with the market bouncing I opened a new £0.50/¢ short $12.25. So far so good.

With more stock potentially hitting the market today there is more downside potential and the chart below is showing a solid decline.

Note, I’ve adjusted the channel, it’s now a very wide channel. There’s plenty of room for a bounce, hence I’ve only taken a £0.50/¢ short (wide Stop at $16.00 and Limit order at $11.50).

If the market bounces to the $13.00 – $13.50 area then I’ll ponder another £0.50/¢ short. Right now I don’t want to overextend myself.

This is Not a Long-Term Trade for Me
I think we could see more downside this week but I will probably get out of the market this week too.

Once this week ends there will be a lack of data and therefore the number of unknowns increases.

Also, tech stocks are notoriously difficult to predict so I’d rather play it safe and exit… unless a strong down trend continues throughout the week, if so, I may continue to hold a £0.50/¢.

Snap Chart: May to August 2017



17 Aug 2017: Snap Spread Bets End on a Whimper

As many predicted, Snap gapped lower over the weekend and opened at $11.50, that was good news for my £0.50/pt short at $12.25.

The market then continued lower to $11.28 before bouncing very quickly.

I happened to be looking at the live chart and the speed of the bounce looked very aggressive.

I managed to close at $12.09 and a miserly profit of ($12.25 – $12.09) x £0.50/pt = 16pts x £0.50/pt = £8.

That’s a lot of work for a pint and some peanuts.

That chart has since continued higher and broken my very wide channel.

Snap Chart: 17 August 2017


Market Not Behaving as Expected = No More Trades for Now

I wasn’t expecting such a strong bounce. Especially with such week fundamentals (see Q2 data above).

Snap Inc. is now acting like a classic tech stock, i.e. defying gravity and all reason.

Therefore, I doubt I’ll be opening any new Snap spread bets soon.

At least we’ve had some nice trades since 1 August 2017 and a healthy overall profit.

There is an interesting move in the gold market though.


Where Can I Spread Bet on Snap Inc?

IG, CMC Markets, Financial Spreads and CoreSpreads have markets. Plus 500 also have a CFD market.

It may take a little time for the other brokers to wake up.

Note that shorting the stock will probably be limited for some time.

The spreads and CFD firms often limit shorting after IPOs, it’s easy for them to layoff long positions but almost impossible to layoff a nasty short position.


Video 25 July 2017: Snap Shares Lock-Up Expiry

Below, a short video from IG on 25 July 2017 looking at the expiry of the IPO lock-up:


13 July 2017: A Good Example of a Risk with Spread Betting

Snap has given a textbook example of how a couple of ‘gaps’ in this week’s volatile price movements can hurt investors.

See ‘snap gap’ charts.


11 July 2017: Lead Underwriter Downgrades Snap Stock

Morgan Stanley, Snap Inc.’s lead underwriter for the IPO, has downgraded the share price only 4 months after the messaging firm listed on the stock market on 2 March 2017.

The stock IPO’d at $17 and briefly hit a high of $29.38.

It’s barely traded above $24 since 7 March and it’s been trading below $20 since 8 June.

It’s now seen a quick drop through the $17 IPO level to trade around $16.

There doesn’t seem to be much love for the stock and there could be more selling with the expiry of the stock’s lock-up period on 29 July.

Snap Market Capitalisation

It’s still “worth” around $18bn.

For more see Reuters: Snap shares drop after downgrade from lead underwriter Morgan Stanley.


11 May 2017: Snapped

Snap inc. lost $2.2bn in market cap yesterday.

But according to Chris Beauchamp at IG Index, all is not lost.

“If Snap’s story is user growth, then at least they are delivering on that front.

“The userbase has risen 36% year-on-year and 5% on the last quarter.

“Now that the initial hype has subsided, will some see this as their chance to invest?”

Err… I do appreciate the IG analysts needing to give a balanced opinion but the market cap is still a whopping $28bn and that’s huge in comparison to the revenue stream.


3 March 2017: What’s the Worst that Could Happen?

There was a good comment today, from Michael Hewson, Chief Market Analyst, CMC Markets.

“The level of enthusiasm for a tech firm that remains a long way from being profitable and has little in the way of assets remains somewhat surprising.

“The Snapchat app maker now has a larger market cap then eBay, what can possibly go wrong?”


Snap Chat Amongst the Pigeons?

Snap Inc IPO’d yesterday, 2 March 2017.

The IPO got off to a cracking start and the shares traded 44% higher.

That makes Snap’s IPO the biggest since 2012.

Will it be another Twitter or Facebook, only time will tell?

(…although the lack of profits might give canny investors a wee clue…)

It’s tempting to short the US tech firm but the market is far too volatile right now and it’s probably best to wait… particularly with the IG chart below showing a rather buoyant market.


Snap Inc Stock Market Chart on its Debut
The Snap IPO Had the Power


AuthorAlex Turner

Senior Editor, SpreadBetMagazine

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