Bearish Options Traders Pay Up for Twitter Puts After Earnings

Twitter's monthly active users unexpectedly dropped in Q2

Jul 27, 2018 at 10:06 AM
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The shares of Twitter Inc (NYSE:TWTR) are spiraling, after the microblogging company reported an unexpected drop in monthly active users in the second quarter and cautioned of continued weakness in this key metric amid efforts to purge the site of phony accounts. Despite Twitter's third straight quarterly profit and revenue exceeding estimates, TWTR stock is down 13.3% at $37.22 -- on track for its worst day since July 27, 2017.

Heading into today's trading, TWTR shares had been trending higher over the last 12 months, and topped out at a three-year high of $47.79 on June 15. And while the stock is selling off today, the downside appears to have found a floor near the site of Twitter's June 4 bull gap and 80-day moving average.

Analysts were already bearish on Twitter stock before this post-earnings plunge. Of the 29 brokerages covering the shares, 22 maintain a "hold" or worse recommendation. Plus, the average 12-month price target of $34.24 stood at a more than 20% discount to last night's close.

Pessimism has been picking up in the options pits, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TWTR's 10-day put/call volume ratio of 0.46 ranks in the 83rd annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Bearish options traders may want to resist the urge to bet on even bigger Twitter losses today, though. At last check, the stock's 30-day implied volatility skew of -0.6% was docked in the 67th annual percentile, meaning TWTR puts are currently pricing in steep volatility expectations relative to calls.

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