Call Players Get Whacked By Twitter Inc's (TWTR) New Low

Twitter Inc's (NYSE:TWTR) new low is bad news for option traders

Jan 8, 2016 at 12:05 PM
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Twitter Inc (NYSE:TWTR) has fallen 2.3% to $19.81, breaching $20 for the first time ever. TWTR hit an all-time low of $19.60 earlier, and things could get worse, if some of the remaining bullish sentiment on Wall Street begins to unwind. 

For starters, there's a stark call bias in the stock's options pits. Over the past two weeks, almost four calls have been bought to open for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting call/put volume ratio of 3.79 is only 8 percentage points from an annual high. So call buying has been much more popular than normal lately. 

Even more telling is the social media stock's Schaeffer's put/call open interest ratio (SOIR). At 0.47, this reading tells us that call open interest more than doubles put open interest among options with a lifespan of three months or less. This SOIR also represents an annual low, meaning short-term option traders are extremely call-skewed.

And just to show how zealous TWTR call players are, call volume is accelerated today (and doubles put volume), even as the stock plummets. In fact, it looks like buy-to-open activity is transpiring at the weekly 1/8 20.50-strike and June 20 calls, with short- and long-term bettors keeping the faith.

However, option traders are not alone in their optimism. Nine of the 23 brokerage firms that track TWTR say it's a "strong buy," with only one calling it a "sell." Meanwhile, short interest actually decreased during the most recent reporting period. 

Twitter Inc's (NYSE:TWTR) technical track record is horrendous. Since touching an annual high of $53.49 in April, the stock has dropped 63%. More recently, the shares have trailed the S&P 500 Index (SPX) by 28 percentage points over the previous three months. As such, if bulls hit the exits, whether it be in the options arena or on the analyst front, TWTR could go even lower. 

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