Inside the Dorsey Portfolio: Twitter Inc and Square Inc

Jack Dorsey's Square Inc (SQ) is faring much better than his other high-profile company, Twitter Inc (TWTR)

by Alex Eppstein

Published on Mar 10, 2016 at 10:10 AM

It's shaping up to be an interesting day for Jack Dorsey, the CEO of tech firms Twitter Inc (NYSE:TWTR) and Square Inc (NYSE:SQ). Both companies are in the news this morning, and their respective stocks are on the move. Below, we'll take a closer look at what's happening to TWTR and SQ, and how Wall Street may be reacting.

Microblogging stock TWTR has shed 3.5% to trade at $17.05, following a Wall Street Journal report that the social media firm has been doling out hefty bonuses and stock to retain talent. "Competitive compensation, strong leadership and a confidence in the direction of the company are all key elements to having top talent," said a Twitter spokesperson in response.

Speaking of confidence in TWTR, option traders have shown it in spades over the past 10 sessions. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 4.07 calls for every put -- a ratio that ranks in the 98th percentile of its annual range.

It's anyone's guess as to why option traders are so upbeat toward Twitter Inc. The stock has dropped 26% year-to-date, and has been feeling the heat recently from its 60-day moving average.

Meanwhile, the other stock in the Dorsey portfolio, SQ, has seen an uptick in bearish options activity in recent weeks. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio has risen to 1.51 from 0.49 over the past 10 sessions, with long puts now outstripping calls.

Option bears are likely happy with what they're seeing today. SQ is down 2.7% out of the gate at $11.70, despite a better-than-expected earnings report -- its first ever as a publicly traded entity. Still, the stock is up 45% since its record low of $8.06 in early February -- boosted by an investment from this credit card giant.

Square Inc faces negativity outside of the options pits, too. Short interest jumped 19.3% during the latest reporting period to 9.9 million shares, and it would take just over a week for short sellers to cover these positions, at average daily volumes. Also, seven of 11 analysts rate SQ a "hold," and its average 12-month price target of $13.50 stands at a modest 10% premium to current levels, leaving the door wide open for upgrades and/or price-target hikes. This morning, however, Goldman Sachs cut its price target on the stock to $15 from $16.

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