Risk-tolerant speculators looking for a relatively quick score may want to set their sights on social media firm Snap (SNAP). At first glance, SNAP stock seems like an unusually treacherous idea. For starters, Wall Street analysts are pensive on the security’s forward prospects, rating it a consensus Hold. On the technical front, Barchart’s algorithm views SNAP as a 40% Sell, in part due to a weak short-term outlook. Still, the quantitative framework appears rather enticing.

Thanks to the blistering performance of Meta Platforms (META), Snap comparatively has been an afterthought. Since the start of this year, SNAP stock has lost more than 20% of equity value. In sharp contrast, META is almost a perfectly inverted image, moving up roughly 19%. While META likely offers investors upside rewards, the potential payout for SNAP is much greater due to its volatility risk.

What’s more, SNAP is broadcasting a quantitative sign that suggests a potentially positive shift in sentiment regime. As such, traders may be incentivized to consider a long-side wager.

Specifically, in the past two months, SNAP printed a “3-7-D” market breadth sequence: three up weeks, seven down weeks, with a net negative trajectory across the 10-week period. Here, the balance of distributive sessions definitively outweighs that of accumulative sessions. But historically, the 3-7-D pattern has more often than not signaled a reversal.

In 57.14% of cases, the following week’s price action results in upside, with a median return of 4.85%. It’s worth pointing out that between the opening price of June 9 and the intraday high of June 11, SNAP stock gained approximately 6.83%. Therefore, the implications of this sequence has played out quite accurately.

What’s more, SNAP is on course this week to print a 4-6-U sequence. It’s here that quantitatively minded traders should pay attention.

Using Statistics to Potentially Extract Profits from SNAP Stock

Although fundamental and technical analysis may offer heuristic value in providing a visualization of the current market environment, one of the main flaws is that these methodologies suffer from the non-stationarity conundrum. Essentially, the metric of comparison fluctuates, rendering statistical analysis difficult, if not outright impossible.

Both approaches rely heavily on heuristic statements, such as price-to-earnings ratios under 15 being undervalued or moving-average crossovers representing viable entry points. However, the context of the metrics being used — such as earnings or share price — drift temporally. In other words, vast stretches of time can greatly distort the metrics. Subsequently, neither the fundamental nor technical methodology offers empirical value.

What is necessary, then, for empirical studies of the market is a forced stationarity. In my opinion, one of the easiest metrics to analyze from a statistical standpoint is market breadth — the sequence of accumulative and distributive sessions. Market breadth is a representation of demand and demand is a binary construction: it’s either happening or it’s not. Binarism lends itself to categorization and quantification, which then facilitate probabilistic projections.

Think of it this way: stationarity is similar to the rules of chess. Different chess players utilize different openings and defenses. However, the rules are always the same. This consistency enables the discovery of empirically founded and falsifiable patterns — patterns that can be studied to determine how markets shift from one sentiment regime to another.

As stated earlier, SNAP stock is on course to print a 4-6-U sequence this week. In 55.56% of cases, the following week’s price action results in upside, with a median return of 5.2%. Let’s assume that SNAP stock closes at $8.60 by this coming Friday. The equity would be on pace to breach the $9 level quickly, perhaps in a week or two.

An Aggressive but Simultaneously Sensible Call Spread

For those speculators interested in rolling the dice, the 8.50/9.00 bull call spread expiring June 27 is tempting. This transaction involves buying the $8.50 call and simultaneously selling the $9 call, for a net debit paid of $23. Should SNAP stock rise through the short strike price ($9) at expiration, the maximum reward is $27, a payout of over 117%.

Primarily, the reason why this trade is attractive is the statistical response to the 4-6-U sequence. If the bulls maintain control of the market, they should have enough firepower to trigger the short strike price within the allotted time.

Moreover, the 4-6-U typically signals a shift in sentiment regime. As a baseline, the chance that a long position in SNAP stock will be profitable over any given week is only 48.15%. However, the aforementioned sequence shifts a negative bias into a positive one, incentivizing a debit-based options strategy.