Twitter, Inc. (TWTR) Option Traders Bet On a Breakout

Speculation is swirling that Carl Icahn may be taking a stake in Twitter Inc (TWTR)

Jan 6, 2015 at 12:52 PM
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Twitter Inc (NYSE:TWTR) is bucking the broad-market trend lower today, as rumors swirl that activist investor Carl Icahn may be taking a stake in the company -- overshadowing last night's site outage. In the options pits, call volume has soared to two times what's typically seen at this point in the day, and amid this accelerated demand, the equity's 30-day at-the-money implied volatility has jumped 7.1% to 69.8% -- in the 79th percentile of its annual range.

Most active is TWTR's weekly 1/9 37-strike call, where nearly 11,000 contracts have changed hands. All signs suggest positions are being bought to open here, as traders roll the dice on more upside for the equity through this Friday's close, when the weekly series expires. Delta on the call is perched at 0.52, indicating a roughly 1-in-2 probability of an in-the-money finish.

Outside of the options arena, sentiment is skewed more toward the skeptical side. Short interest, for example, surged 22.8% over the last two reporting periods, and now accounts for a healthy 6.3% of the stock's available float. Elsewhere, more than half of the 27 analysts covering the shares maintain a "hold" or "strong sell" suggestion.

On the charts, Twitter Inc (NYSE:TWTR) has been as volatile as the company's changes to its business model. While all this up-and-down action has translated into a year-over-year loss of around 39%, the stock recently found a foothold in the $35-$36 region, and was last seen lingering near $37.62, up 3.4% on the day. A continued breakout from this area may prompt a capitulation from some of the weaker bearish hands and/or a round of upgrades, which could help propel the equity higher.

Daily Chart of TWTR Since January 2014

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