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Most Active Options Update: Twitter Inc (TWTR)

Twitter Inc option players predict more upside in the short term

by 8/27/2014 1:57 PM
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 volume.

Most Active Options Table

Twitter Inc shares were last seen 0.4% lower at $48.01, swooning in sympathy with sector peer Facebook Inc (NASDAQ:FB). Nevertheless, TWTR has seen more than 100,000 calls change hands -- a 38% mark-up to the stock's average intraday call volume, and more than triple the number of puts exchanged.

The equity's 30-day at-the-money (ATM) implied volatility (IV) has popped 3.7% to 38.9%, reflecting a growing appetite for short-term options. Echoing that, the ATM September 48 call is hands down the most active strike, with more than 12,500 contracts traded. The majority of the calls crossed on the ask side, and IV at the strike is trending higher, collectively pointing to buy-to-open activity.

By purchasing the calls at a volume-weighted average price (VWAP) of $1.90, the buyers will make money if TWTR is sitting north of $49.90 (strike plus VWAP) at the close on Friday, Sept. 19, when front-month options expire. Profit potential is theoretically unlimited beyond breakeven, while the buyers' maximum risk is the initial premium paid, should TWTR backpedal south of $48 before expiration.

Technically speaking, TWTR has outperformed the broader S&P 500 Index (SPX) by more than 42 percentage points during the past three months, and yesterday notched its highest close since late March after announcing the expansion of its ad network. Now, the stock is struggling to make a definitive move north of $48, which halted the equity's post-earnings rally in late July, and is home to the security's stagnating 10-month moving average.

In light of Twitter Inc's (NYSE:TWTR) advance, its 14-day Relative Strength Index (RSI) sits at a lofty 76 -- in overbought territory, suggesting today's breather may have been in the short-term cards. Delta on the aforementioned calls stands at 0.53, implying about a 1-in-2 shot of the option expiring in the money.


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