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Option Brief: Twitter Inc (NYSE:TWTR) is reeling at midday, after last night reporting that its growth slowed in the first quarter, and getting hit by a series of bearish brokerage notes this morning. At last check, the shares were down 10% to hover at $38.35 -- after earlier touching a record low of $37.24 -- and had earned a place on the short-sale restricted list. Consequently, betting has accelerated in TWTR's options pits -- especially on the put side, which accounts for four of the five most active strikes.
The lone exception (which happens to be the most active option), however, is Twitter's May 40 call, where roughly 12,900 contracts are on the tape. The majority have crossed at the ask price, and volume outstrips open interest, hinting at buy-to-open activity -- a theory that data from the International Securities Exchange (ISE) confirms. By scooping up these long calls, today's speculators are anticipating a short-term rebound from the shares of the microblogging service. Specifically, the buyers need the stock to rally back above $40 by the close on Friday, May 16, when front-month options expire. However, if TWTR remains pinned below the strike throughout the call's lifetime, the traders will part with no more than the initial premium paid.
Taking a step back, Twitter Inc (NYSE:TWTR) has been trending lower on the charts since hitting an all-time high of $74.73 in late December. In fact, during the past 60 sessions, the stock has underperformed the broader S&P 500 Index (SPX) by nearly 40 percentage points. As such, delta on the aforementioned call sits at just 0.41, conveying a roughly 2-in-5 chance that the contract will expire in the money.