Snap Stock Has an Ugly Earnings History

Social media stocks have been in focus lately, after Facebook (FB) and Twitter (TWTR) each reported earnings in the last two weeks. Now stepping up to the plate this week is Snapchat parent Snap Inc (NYSE:SNAP), the shares of which are staring up at two notable technical levels ahead of earnings after the close tomorrow. Here's a closer look at SNAP stock's performance lately, and how options traders are playing the social media name ahead of earnings.

It's been a choppy start for SNAP stock, which has shed roughly half its value since touching a an all-time high of $29.44 in early March, on its first day as a publicly traded stock. At last check, Snap stock was down 2.1%to trade at $14.93, and the overhead $15.50-$15.60 area represents a 23.6% Fibonacci retracement of SNAP's record high to its record low. In addition, the overhead $17 region is home to the stock's IPO price, and has kept a tight lid on SNAP stock since a mid-July bear gap. The equity made an attempt at retaking this level back in October, but was ultimately turned away.

The social media name has a dismal history of post-earnings price action, with the shares plummetingin both sessions following its two earnings reports: SNAP fell 14.1% after earnings last August, and suffered a 21.5% post-earnings drop in May. On average, the security has dropped 17.8% in the session after earnings.

For Wednesday's trading, the options market is pricing in a bigger-than-usual 21.4% post-earning swing, regardless of direction, based on SNAP stock's at-the-money implied volatility (ATM IV) data. A drop of that magnitude would have SNAP within striking distance of its all-time low of $11.28, while a 21.4% rally would place the shares around $18.12 -- above their IPO price, but near a 38.2% Fibonacci retracement of SNAP's all-time high to all-time low.

Short sellers will be eyeing tomorrow's report with great interest. Short interest increased by 17% during the last two reporting periods, to a record high 121 million shares. This represents a healthy 10% of SNAP's total available float. At the equity's average daily trading volume, it would take more than a week to buy back these bearish bets.

Analysts are equally pessimistic toward SNAP, and have been maintained this bearish outlook for some time now. Specifically, 20 brokerages maintain a tepid "hold" or worse ratings, compared to seven "buy" or better recommendations.

In the options pits, near-term traders prefer puts over calls. The stock sports a Schaeffer's put/call open interest ratio (SOIR) of 1.24, indicating puts outnumber calls among options expiring within three months. Today, SNAP puts are trading at nearly twice the typical intraday pace, with possible buy-to-open action detected at the December 14 put.