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Option Brief: Twitter Inc (NYSE:TWTR) is bucking the broad-market trend lower this afternoon, up 1.8% to $41.61 on news that the microblogging site has acquired social data provider Gnip. As such, options are trading at a slight mark-up to normal intraday volumes, with 33,000 calls and 36,000 puts on the tape.
One series of interesting transactions in TWTR's options pits today involves a sweep of 5,000 July 50 calls, which occurred at the ask price of $1.80 per contract. Corresponding with this trade was an identically sized sweep of July 60 calls, which transpired at the bid price of $0.52 each. In both cases, volume outstrips open interest, suggesting long positions were opened at the lower strike and short positions at the higher. Simply put, this trader is using a long call spread strategy to wager on an intermediate-term rally for TWTR shares.
Specifically, the bullish bettor is looking for the stock to muscle its way north of $50 by July options expiration, roughly three months from now. However, because the trader is skeptical of Twitter's ability to surpass the high strike, he sold the July 60 calls, helping him to offset a portion of the premium paid for the purchased calls. In any case, the maximum potential loss on the spread is the initial net debit (or $1.28 per pair of contracts), while the maximum potential gain is $8.72 (the difference between the strikes, less the net debit).
Technically speaking, 2014 has not been a good year for Twitter Inc (NYSE:TWTR), despite today's move higher. In fact, the shares have shed nearly 35% since Jan. 1. Part of the problem was a negative post-earnings reaction in early February, when the stock lost nearly a quarter of its value in the session following its quarterly event. That said, today's trader likely has Tuesday, April 29 -- when TWTR is slated to step into the earnings confessional again -- circled on his calendar.