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Option Brief: Twitter Inc (NYSE:TWTR) is on the mend after touching an all-time post-earnings low of $37.24 yesterday, with the shares up 1.5% at $39.54. However, the microblogging concern remains on the short-sale restricted list, sending bears to the options pits instead.
In early trading, TWTR has seen roughly 16,000 puts change hands -- a 63% mark-up to the stock's average intraday put volume. While short-term options are in demand -- the stock's 30-day at-the-money implied volatility (IV) is 1.9% higher at 56.8% -- the September 40 put has garnered the most attention. Specifically, more than 2,600 contracts have traded at the strike, nearly all on the ask side, hinting at buyer-driven volume. Plus, IV is trending higher, and volume has surpassed open interest, underscoring our theory of newly bought bearish bets.
By purchasing the puts at a volume-weighted average price (VWAP) of $6, the buyers will reap a reward if Twitter Inc (NYSE:TWTR) is trading south of breakeven at $34 (strike minus VWAP) -- in record-low territory -- at the close on Friday, Sept. 19, when the options expire. Delta on the puts sits at negative 0.44, implying a less than 1-in-2 shot of an in-the-money finish at expiration. Risk, meanwhile, is capped at the initial premium paid for the puts, should TWTR climb back atop the strike by expiration.