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Most Active Options Update: Twitter Inc (TWTR)

Twitter Inc calls are active ahead of earnings

by 7/28/2014 11:31 AM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is Twitter Inc (NYSE:TWTR), which has seen accelerated call activity ahead of earnings tomorrow night.

Most Active Options Table

Twitter Inc is 1.1% lower at $37.73, bringing its year-to-date deficit to roughly 41%. The stock has underperformed the broader S&P 500 Index (SPX) by nearly 8 percentage points during the past month -- and the company's earnings history isn't much to write home about -- yet TWTR calls remain the options of choice.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.5 TWTR calls for every put during the past two weeks. In the same vein, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.48 indicates that calls more than double puts among options slated to expire within the next three months.

In today's session, TWTR call volume is running at a 32% mark-up to the intraday norm, with calls nearly doubling puts. Digging deeper, it looks like some speculators are abandoning their out-of-the-money August 45 calls, selling them to close ahead of earnings, while others are establishing new bullish bets at the 38 strike.

Specifically, the September 38 call has seen nearly 4,600 contracts change hands -- mostly on the ask side, suggesting they were bought. Volume has surpassed open interest at the near-the-money strike, hinting at fresh initiations.

By purchasing the calls at a volume-weighted average price (VWAP) of $3.31, the buyers will reap a reward if TWTR is perched atop $41.31 (strike plus VWAP) at the close on Friday, Sept. 19, when back-month options expire. The buyers' profit is theoretically unlimited north of breakeven, while risk is capped at the initial premium paid for the calls, should TWTR remain south of the strike through the option's lifetime.

Ahead of earnings, TWTR's short-term options are growing more expensive, thanks to escalating demand. The stock's Schaeffer's Volatility Index (SVI) has jumped from 43% on July 10 to its current perch of 70% -- in the 48th percentile of its annual range. Meanwhile, the implied volatility of the aforementioned September 38 call stands at 55.7%, compared to TWTR's two-month historical volatility of 44.1%, suggesting the options are relatively pricey at the moment.

As alluded to earlier, a post-earnings rally tomorrow night would be a deviation from the norm for Twitter Inc (NYSE:TWTR). Following its only two trips to the earnings confessional, the stock suffered subsequent one-week drops of 13.8% and 25.3%, respectively.


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