The person who originally made this writing prompt may not have had the option of italicizing anything, but in fiction (like, y’know, for books or short stories that are, like, y’know, gonna be published and stuff so other people can read ’em), as in professional journalism, italics rather than all caps are used for extra emphasis.
Also, whether the words that come after the dialogue are tag or associated action, you need some kind of punctuation at the end of the dialogue itself.
“That is the smallest ghost I have ever seen.” He snickered.
(To me, italicizing that seems to indicate the speaker is saying this particular ghost, rather than some other ghost, is the smallest he has ever seen. If just the fact that he’s never seen a ghost so small before is the point, ever would be a better word to italicize, if any. And yes, these things do matter sometimes. When people speak face to face, we get their voice inflections and gestures and facial expressions and all the stuff that falls into the alleged seventy-plus percent of communication that’s not the words themselves. In writing, you have to somehow indicate all that with only the marks on the page.)
Now, it could also be written like so: “That is the smallest ghost I have ever seen,” he snickered.
Y’see, a snicker is a kind of vocalization. Snickering has a distinct effect on how the voice sounds when speaking. Thus snickered is a valid choice for the tag on dialogue and doesn’t have to be an associated action instead, although it can be if the snicker is a separate thing from the speaking.