Most Active Options Update: Twitter (TWTR)

Twitter Inc option traders place bets ahead of the company's inaugural financial analyst day

Nov 11, 2014 at 11:29 AM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is microblogging king Twitter Inc (NYSE:TWTR), which is generating attention ahead of the company's first financial analyst day tomorrow, roughly a year after going public.

Most Active Options Table

Twitter Inc is flirting with breakeven at $39.59, and sits on a year-to-date loss of 37.9%. However, traders continue to favor TWTR calls over puts, with roughly 25,000 of the former exchanged, compared to 21,000 of the latter.

Digging deeper, it appears short-term bulls are buying to open the weekly 11/14 40.50-strike call, where implied volatility has surged 13.4 percentage points. More than two-thirds of the calls crossed on the ask side, too, underscoring our theory of newly purchased positions.

The calls traded at a volume-weighted average price (VWAP) of $0.65, meaning the buyers will begin to profit if TWTR topples $41.15 (strike plus VWAP) by Friday's close, when the weekly series expires. Gains are theoretically unlimited north of breakeven, while the buyers' risk is capped at the initial premium paid, should TWTR remain south of the strike through the end of the week. Delta on the call currently stands at 0.37, implying a roughly 37% chance of the contracts expiring in the money.

Now is an opportune time for buyers to gamble on TWTR's short-term trajectory. The stock's Schaeffer's Volatility Index (SVI) of 46% stands higher than just 16% of all other readings from the past year, suggesting the equity's near-term contracts are relatively inexpensive at the moment.

Nevertheless, it looks like one speculator sold to open a block of weekly 11/14 38-strike puts, but hedged her bets by buying to open an equal number of weekly 11/14 37-strike puts. The bull put spread was established for a net credit of $0.18 per pair of puts, which can be retained as long as TWTR remains north of $38 (sold put strike) through Friday's close.

As alluded to earlier, today's affinity for Twitter Inc (NYSE:TWTR) calls over puts is just more of the same. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.18 TWTR calls for every put during the past couple of weeks -- a ratio that ranks in the bullishly skewed 72nd percentile of its annual range.


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