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Twitter Inc (TWTR) Rebound Triggers Call Buying

Twitter Inc speculators picked up out-of-the-money call options

by 2/13/2014 9:19 AM
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Since testing its footing in the $50 area a week ago, Twitter Inc (NYSE:TWTR) has staged a notable rebound, up 13.7% to $56.85. Against this backdrop, option traders' affinity for calls is once again on the rise, with speculators either gambling on more upside for TWTR, or hedging their bearish bets.

During Wednesday's session, the stock saw about 116,000 calls change hands -- a 12% mark-up to its average daily volume. Digging deeper, it looks like short-term traders purchased to open the March 77.50 calls, while longer-term traders bought to open the January 2015 75-strike calls. Open interest at the strikes rose by nearly 3,000 contracts and 3,850 contracts, respectively, overnight.

As alluded to earlier, the buyers are either gambling on TWTR to surmount the respective strikes -- neither of which has ever been conquered by the shares -- within the options' lifetime, or are hedging their short positions. Short interest rose 15.1% during the past two reporting periods, and now accounts for 33.8 million TWTR shares, or 7% of the stock's total available float.

Whatever the motive, the general appetite for TWTR calls isn't what it used to be. Before Twitter Inc's (NYSE:TWTR) earnings debut last week, the stock's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stood at an all-time high of 2.22, compared to its current reading of 1.51.


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