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Pre-Earnings Twitter Inc (TWTR) Speculators Aim High

Twitter Inc is tentatively scheduled to report earnings next week

by 7/15/2014 10:11 AM
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Twitter Inc (NYSE:TWTR) didn't do much on the charts yesterday, finishing fractionally lower at $38.31 -- thanks to overhead resistance in the form of its 20-day moving average, currently located at $39.49. Nevertheless, the microblogging stock saw heavy betting at its deep out-of-the-money August 45 call, where more than 9,800 contracts changed hands -- besting any other TWTR strike.

Diving into the details, the majority of the contracts traded at the aforementioned strike did so at the ask price, and open interest popped overnight, collectively indicating the calls were bought to open for a volume-weighted average price (VWAP) of $1.18. Thus, at-expiration breakeven at the close on Friday, Aug. 15, is $46.18 (strike plus VWAP) -- a level not seen by TWTR shares since late April, prior to an earnings-induced tumble. Additional profits will accrue north of breakeven, while the traders will lose no more than the initial premium paid, should the contracts expire out of the money.

Looking ahead, TWTR is tentatively slated to step into the earnings confessional next week. As alluded to above, these quarterly events haven't been kind to the equity. Since going public late last year, the company has posted two earnings beats, but averaged a loss of nearly 20% in the subsequent week. Given this history -- as well as the 20.2% rise in short interest during the most recent reporting period -- a portion of yesterday's call buyers may have been short sellers picking up the contracts as protection against an unexpected post-earnings rally.

Finally, Twitter Inc (NYSE:TWTR) received an upgrade this morning to "neutral" from "underperform" at Macquarie -- an improvement, but not a ringing endorsement. Generally speaking, the Street is tilted in a bearish direction toward the stock, with 16 "hold" or "sell" ratings outweighing seven "strong buy" recommendations.


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