Trader wins as Snap bounces back

Snap’s stock has been denounced by many pundits since going public last month, but at least one trader is proving the skeptics wrong.

On Tuesday, Investitute’s tracking systems found that 2,000 Weekly $21.50 calls expiring on May 12 were purchased for $1.30 as shares traded for $21.32. This was clearly a new position, as open interest in the strike was only 174 contracts before the buying appeared.

Those calls ended today’s session at $2.15, a gain of more than 65 percent in just four sessions. The stock rose less than 5.8 percent in the same time period, underscoring the kind of leverage that can be achieved through options.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

SNAP was up 2.45 percent to close at $22.55 today. The social-media company pulled back sharply after its first few days of trading in early March but has been drifting higher in the last two weeks.