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Option Brief: After ushering the tech sector lower yesterday, Twitter Inc (NYSE:TWTR) continues to tumble this morning, down 5.2% to a new record nadir of $29.94. The stock remains on the short-sale restricted list, sending bears to the options pits instead. So far today, TWTR has seen roughly 66,000 puts cross the tape -- three times its average intraday rate -- with speculators showing a fondness for soon-to-expire puts.
The eight most active contracts today expire at Friday's closing bell, and the stock's 30-day at-the-money implied volatility (IV) has edged 3% higher to 64.6%, underscoring the escalating demand for short-term options. Most popular are the weekly 5/9 30- and 31-strike puts, where the majority of the contracts traded on the ask side, suggesting they were bought. Plus, IV at the former strike is up 13 percentage points, and has risen 14.2 percentage points at the latter strike, while volume has surpassed open interest at each strike -- hinting at fresh initiations.
The 30-strike puts traded at a volume-weighted average price (VWAP) of $0.68, meaning the buyers will reap a reward if TWTR is sitting south of breakeven at $29.32 (strike minus VWAP) -- a new record low -- at the close on Friday, when the options expire. Meanwhile, the VWAP of the 31-strike puts is $1.05, making breakeven at expiration $29.95. Should the stock stage a rebound and end the week north of the respective strikes, the most the buyers are risking is the initial premium paid for the puts.
In light of the stock's extended retreat -- triggered by the expiration of Twitter Inc's (NYSE:TWTR) lock-up period -- the shares are now nearly 52% lower year-to-date. Furthermore, the security's 14-day Relative Strength Index (RSI) has plummeted to 23 -- in oversold territory -- and the equity is poised to close a second straight session south of its lower Bollinger Band.