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Option Brief: Twitter Inc (NYSE:TWTR) has shed 7.3% so far this month, finishing at $50.92 on Friday amid the microblogging site's ban in Turkey. However, options traders gambled on support for the shares at the mid-century mark, selling to open round-number puts. Furthermore, the stock's 30-day at-the-money implied volatility (IV) jumped 5.4% to 43.1%, echoing the escalating demand for short-term contracts.
By the close, TWTR had seen roughly 59,000 puts change hands -- a 63% mark-up to its average daily volume. Garnering notable attention was the May 50 put, where more than 11,800 contracts traded, primarily in smaller blocks at the bid price. IV at the strike edged 1.9 percentage points higher, and open interest skyrocketed by nearly 7,700 contracts over the weekend -- the most of any strike -- confirming the addition of new positions. Plus, the International Securities Exchange (ISE) confirms that at least a handful of the puts were sold to open.
By writing the puts to open, the sellers expect TWTR to remain north of $50 through the close on Friday, May 16, when the back-month options expire. In this best-case scenario, the puts will remain out of the money, and the sellers can pocket the entire net credit. However, should Twitter Inc (NYSE:TWTR) end beneath the strike for the first time in 2014, the sellers could be assigned -- meaning they'll be on the hook to buy shares of TWTR for $50 apiece, representing a premium to the Street value.