Mike Khouw's Snap Options Trade Ahead Of Earnings

Mike Khouw spoke on CNBC's "Options Action" about Snap Inc SNAP. The company is going to report earnings Tuesday and the options market is implying a 14 percent move in either direction.

Khouw wants to use a put calendar to make a bearish bet in the name. He thinks this strategy is the best choice because of high uncertainty of the event and because options are expensive.

He wants to sell the November 10, 14 strike put for $0.65 and buy the January 14 put for $1.10. The total cost of the put calendar is $0.45 and in the ideal scenario, the stock should trade slightly above $14 at the November expiration and then it should trade below $13.55. Khouw added that even if the stock drops to $13 immediately after earnings, he would be able to make money, because the November put is only going to cost $1 and the January put would be worth much more.