Monday, September 21st, 2020

Snowflake Options

September 9, 2020 by Jim Walker  
Filed under Options Trading Education

 

Investors are eyeing the upcoming IPO for Snowflake, a company that makes mining of big data easier. Snowflake options may be a profitable course of action. Snowflake may well be an excellent investment in both the near and long term. For the options trader, what is the best course of action when Snowflake options are available?

Snowflake IPO

The Motley Fool wonders if Snowflake could be a millionaire-maker. They start by explaining what the company does.

Snowflake capitalizes on two of the biggest trends in enterprise technology today: big data processing and the public cloud. Its core product is a cloud-based data warehouse that works seamlessly across the three major public clouds, in contrast to legacy data warehouses that were initially designed for use with on-premises data centers. The company has expanded from its initial offering, and now provides a unified big data querying, governance, and services suite.

As data analysis becomes a more and more powerful tool for many industries, a tool that make data mining easier and provides more insight will gain lots of customers. This is an indication that over time Snowflake will prosper. But, how will the stock do during its IPO and afterward? How will options trading help traders win profits from trading Snowflake options?

Snowflake Options

The general consensus is that Snowflake has a good service that will make money. The consensus is also that the IPO may be overpriced. Snowflake options will not be available at the IPO for the company but rather after the initial trading has already happened. Our opinion is that the IPO will attract a lot of attention and that the stock price will be high in the $75 to $85 range. But, what will happen to the stock price as the company starts issuing quarterly reports? Will it grow so fast that investors will accept a high profit to earnings ratio? Of will there be a time when investors become concerned about a high stock price and lagging earnings?

The Stock Market and the Economy

No matter how great a product or service a company has, it needs customers. And the customers need to have money because they are making profits. The stock market tanked at the onset of the Covid-19 pandemic and has recovered. The recovery is largely driven by tech stocks as travel, hospitality, and other sectors are hurting and will hurt for some time to come. While the market flirts with new highs the economy is still in trouble and millions are out of work. Our opinion is that we are in for a long U-shaped recovery and the market will eventually correct downward. That will include high flyers like Snowflake.

Which Options for Snowflake?

When a stock is volatile and as likely to move in one direction as the other, a common approach is a long straddle in which the trader buys calls and puts on the same stock with the same expiration date. The only way to lose is if the stock does not budge in price. Considering that Snowflake shows a lot of promise and the only issue is its being overpriced, that might be the best approach.

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