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Twitter Inc (TWTR) Option Buyers Eye Short-Term Gains

Today's Twitter Inc call buyers may be short sellers in disguise

by 7/21/2014 10:54 AM
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Twitter Inc (NYSE:TWTR) is bucking the broad-market trend lower -- albeit slightly -- up 0.6% to trade at $37.29. Calls are in high demand, crossing at a 78% mark-up to the average intraday clip, and more than doubling the number of puts exchanged.

TWTR's most active strike is the August 42 call, where nearly 8,600 contracts are on the tape. With more than three-quarters trading off the ask, implied volatility edging higher, and volume outstripping open interest, it's safe to assume these positions are being bought to open.

The volume-weighted average price (VWAP) for the out-of-the-money (OOTM) calls is $1.04, making at-expiration breakeven $43.04 (strike plus VWAP). Additional gains will rack up north of here, while the most the speculators risk losing is the initial cash outlay, should TWTR be sitting bellowing $42 at the close on Friday, Aug. 15 -- when the newly front-month contracts stop trading.

Not all of today's options players are necessarily bullish, however. Given Twitter Inc's (NYSE:TWTR) rising short interest levels -- as well as the deep OOTM status of the calls -- it's possible the contracts are being purchased by short sellers as a hedge. Looking ahead, TWTR is scheduled to report second-quarter earnings next Tuesday afternoon -- which could also have the shorts feeling uneasy.


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