Twitter Inc (TWTR) Option Traders Gamble On a Quick Breakout

Twitter Inc call buying has been a popular strategy of late

by Karee Venema

Published on Nov 28, 2014 at 11:11 AM
Updated on Apr 20, 2015 at 5:32 PM

Option bulls have set their sights on Twitter Inc (NYSE:TWTR) in recent weeks, as they roll the dice on a rebound for the struggling stock. Over the past 10 sessions, for example, the security has racked up a call/put volume ratio of 3.09 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the 93rd annual percentile, meaning calls have been bought to open over puts with more rapidity just 7% of the time within the past year.

This bias toward calls is being witnessed today, with the contracts changing hands at 1.2 times what's typically seen at this point in the day, and outpacing puts by a nearly 4-to-1 margin. In fact, nine out of TWTR's 10 most active options reside on the call side. Meanwhile, the equity's 30-day at-the-money implied volatility (IV) has jumped 7.2% to 41.0%, signaling elevated demand for TWTR's short-term contracts.

Receiving notable attention is the stock's weekly 12/12 43-strike call, where 3,793 contracts are on the tape. The majority of these have traded at the ask price, IV is up 4.8 percentage points, and volume outstrips open interest, making it safe to assume new positions are being purchased. The options market isn't too confident the call will be in the money at the close on Friday, Dec. 12 -- when the series expires -- as its delta is docked at a 0.40.

On the charts, Twitter Inc (NYSE:TWTR) has struggled this year, shedding more than 34% of its value. Today, though, the equity is showing some signs of life -- up 1.9% at $41.89 -- after the company announced a new plan to track third-party app installations on mobile devices.


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