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Following an early morning upgrade, Twitter Inc (NYSE:TWTR) saw accelerated call activity yesterday, as 150,000 contracts crossed the tape, compared to an expected amount of 87,000. For comparison, just 42,000 puts were exchanged. Despite the emphasis on calls, activity at the microblogging site's most popular strike reveals not all of this was of the typical bullish variety.
Specifically, traders flocked to TWTR's July 39 call, where close to 28,000 contracts changed hands. Open interest soared overnight -- indicating the creation of new positions -- but the majority of the calls traded at the bid price, suggesting they were sold to open. In other words, Tuesday's speculators are actually skeptical of the stock making a significant advance over the coming weeks.
In a nutshell, the call writers are banking on TWTR -- 1.5% higher at $35.90 this afternoon -- to spin its wheels below the 39 strike through the closing bell on Friday, July 18, when back-month options expire. If this materializes, the contracts will expire worthless, and the sellers will retain the initial premium collected as their maximum potential reward; if it doesn't -- and the shares rally past $39 -- the traders could be assigned, and face theoretically unlimited losses.
Technically speaking, Twitter has been in a steady downtrend in 2014, off nearly 44% year-to-date. What's more, the shares are currently battling resistance at their overhead 40-day moving average, which hasn't been toppled since early February.
On the sentiment front, however, bullish betting has accelerated. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Twitter Inc's (NYSE:TWTR) call/put volume ratio has ballooned to 3.13 -- its highest-ever reading -- from 1.32 one month ago. Should these options bulls start to capitulate, it could intensify selling pressure on the shares.