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Option Traders Gamble On a Twitter Inc (TWTR) Rebound

Twitter Inc shares have shed more than 11% this morning

by 5/6/2014 11:07 AM
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Option Brief: Twitter Inc's (NYSE:TWTR) lock-up period expired today, allowing company insiders to dump the stock. As such, the shares are about 11% lower to trade at $34.43, earning them a place on the short-sale restricted list. Meanwhile, in the options pits, overall volume is running at more than five times the normal intraday rate, and not surprisingly, puts are edging out calls on an absolute basis. Nevertheless, one TWTR strike garnering a healthy amount of attention is a near-the-money call.

Diving deeper, the May 36 call is one of Twitter's most active options, with more than 7,000 contracts on the tape. Two-thirds traded at the ask price, implied volatility is trending solidly higher, and volume exceeds open interest at the strike -- all signs of buy-to-open activity. In other words, the call buyers are anticipating TWTR shares will rebound above the 36 strike by the close on Friday, May 16, when front-month options expire. But no matter what happens, the most these individuals have on the line is the initial premium paid.

With this morning's move into the red, Twitter Inc (NYSE:TWTR) has now lost roughly 46% on a year-to-date basis. Earlier in the session, shares of the microblogging site even touched a new record low of $34.29. As such, delta on the aforementioned call is just 0.37, representing a 37% chance that the option will expire in the money.


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