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Twitter Inc (TWTR) Traders Eye Record Highs

Twitter Inc's March 75 call was Tuesday's most active strike

by 2/26/2014 9:26 AM
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Twitter Inc (NYSE:TWTR) calls outstripped puts by about a 4-to-3 margin yesterday. Not surprisingly, six of the seven most active strikes were calls. Leading the way was the microblogging site's deep out-of-the-money March 75 call, where more than 3,600 contracts traded during the session. The majority of the volume at that strike went off at the ask price, implied volatility rose 1.4 percentage points, and open interest spiked overnight, suggesting the calls were bought to open.

Two potential motives may help to explain the trade. On the one hand, the speculators could be banking on TWTR shares advancing past $75 by the closing bell on Friday, March 21, which is when front-month options expire. Should that happen, it would mark an all-time high for the stock, which has only traded as high as $74.73. On the other hand, the call buyers may be short sellers attempting to protect their bearish positions against an unforeseen rally in the equity. After all, since Twitter first went public last November, short interest has increased more than five times over, with nearly 34 million shares currently sold short.

No matter what happens or what the traders' motives, they can rest easy in knowing that TWTR options are relatively inexpensive right now, from a volatility perspective. At last check, implied volatility on the March 75 call was 61%, compared to the stock's 20-day historical volatility of 112.9%.

From a technical viewpoint, Twitter Inc (NYSE:TWTR) has put on a solid display, outperforming the broader S&P 500 Index (SPX) by 38.3 percentage points during the last 60 sessions. Also, since hitting a recent low of $49.99 earlier this month, the shares have muscled 9.9% higher to $54.96.


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