Twitter, Inc. (TWTR) Option Volume Pops Amid M&A Buzz

Twitter Inc (TWTR) weekly calls are in demand amid takeover-related rumors

Apr 7, 2015 at 1:27 PM
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The shares of Twitter Inc (NYSE:TWTR) have rocketed higher today, amid reports the company has hired Goldman Sachs to fend off a takeover bid -- possibly from Google Inc (NASDAQ:GOOGL), according to some media outlets. Against this backdrop, TWTR calls are flying off the shelves, as traders gamble on even more upside for the microblogging titan.

Close to 150,000 calls have changed hands, compared to around 54,000 puts. The stock's 30-day at-the-money implied volatility has jumped 5.2% to 60.2%, and the two most active options are calls expiring at Friday's closing bell.

Specifically, it looks like traders are buying to open the weekly 4/10 52- and 53-strike calls. By purchasing the 52-strike calls at a volume-weighted average price (VWAP) of $0.92, the buyers will make money if TWTR topples $52.92 (strike plus VWAP) by the end of the week. The stock was last seen 3.8% higher at $52.80, and peaked at $53.28 earlier today. Meanwhile, the VWAP of the 53-strike calls is $0.61, making at-expiration breakeven $53.61.

Delta on the weekly 4/10 52-strike call more than doubled overnight, to 0.66 from 0.27, implying a roughly 2-in-3 shot of the option expiring in the money. Delta on the 53-strike call more than tripled, to 0.48 from 0.13, suggesting the odds of an in-the-money finish are roughly those of a coin flip.

Even before today's M&A-inspired surge, TWTR option traders were picking up calls over puts at a near annual-high clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 2.81 stands higher than 99% of all other readings from the past year.

Still, the security's bullish bandwagon is far from crowded. In fact, 12 out of 27 analysts maintain tepid "hold" or worse opinions, even though Twitter Inc (NYSE:TWTR) has outperformed the S&P 500 Index (SPX) by nearly 29 percentage points during the past three months, and is now exploring territory not charted since mid-October. Should TWTR extend its run -- the stock has advanced more than 47% in 2015 alone -- a wave of upgrades could propel the shares even higher.

Daily Chart of TWTR since October 2014
 

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