As Trading Conditions Turn More Favorable, I May Snap Up Some Snap Options

It has been more than a month since the S&P 500, Nasdaq and Russell 2000 traded a fresh bear market low. With all three indexes now trading above their 50-day simple moving averages (SMAs), have we seen the lows for this bear market? And with earnings season just getting underway and the strong likelihood that many companies will miss estimates and issue reduced guidance, is all the bad news baked into the market?

While the guests on CNBC always appear to know the future, I don’t have a clue what’s in store for the stock market. But thankfully, neither you nor I need to know what the future holds to make money.

We’ve seen a noticeable shift in sentiment as the SPDR S&P 500 ETF  (SPY) , Invesco QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM) break above crucial moving averages. The recent gains in the momentum space are also triggering some fear of missing out and thoughts of a bear market bottom among investors, which creates favorable trading conditions for day and short-term traders. Just remember, it will be time to get defensive again if the index ETFs or your favorite stock crashes beneath its 50-day SMA and the 21-day exponential moving average (EMA).

On the earnings front, the only name on my watchlist for this afternoon is Snap Inc. (SNAP) . The company behind Snapchat reports after the close here on Thursday and is expected to lose $.02 a share on the bottom line with around $1.22 billion in revenue.

While I wouldn’t want to be long (or short) SNAP common going into its print, some cheap calls (or puts) may be worth a gamble given the dramatic price reaction when the company reported in early February and warned of an earnings shortfall in late May. On the options side, weekly calls expiring this Friday were incredibly active on the $16, $17.50 and $20 strikes. On the put side, the $10 and $13.50 strikes were most active.

Just know that with expiration on Friday, if the trade goes against you your options will likely be a total loss. While I haven’t made the trade, my inclination is to bet with the bottom fishers and roll with some $17.50 calls.

On Wednesday I mentioned that names such as Teladoc Health (TDOC) , Roblox Corp. (RBLX) and Spotify Technology (SPOT) were starting to show signs of life. While all three stocks gained ground on Wednesday, only SPOT had something even close to strong volume. All three stocks, along with Unity Software (U) , Shopify (SHOP) and Olo Inc. (OLO) are on my daily watch list again, but I continue to feel like this is a significant bear market bounce rather than the beginning of a new long-term uptrend. Put another way, trade ’em but don’t fall in love with them.