Option Bears Pounce as Twitter Inc (TWTR) Takes a Tumble

Twitter Inc (TWTR) is retreating from its 40-day trendline

by Alex Eppstein

Published on Mar 15, 2016 at 2:22 PM
Updated on Jun 24, 2020 at 10:16 AM

Twitter Inc (NYSE:TWTR) has failed to take back its 40-day moving average, last seen 5% lower at $16.27. This is more of the same for the social media stock, which has surrendered 29.3% of its value year-to-date. Based on what we're seeing in today's options pits, plenty of traders think more downside's to come.

Jumping right in, TWTR's most active strike is the out-of-the-money April 15 put. From the looks of it, traders may be buying to open contracts here, wagering the stock will breach $15 by back-month expiration, at the close on Friday, April 15. Even if that fails to happen, the buyers can rest easy knowing the most they've risked is the initial premium paid. In fact, it appears premium is relatively inexpensive on short-term options, based on TWTR's Schaeffer's Volatility Index (SVS) of 56% -- in the bottom one-fifth of all readings from the past year.

Today's put buying represents a break from what we've witnessed of late. Specifically, during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly six TWTR calls for each put. The resultant call/put volume ratio rests at a 12-month high of 5.81.

Echoing this call bias is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55. Not only does this ratio show calls outstrip puts among options in the front three-months' series, it also is positioned south of 84% of comparable readings from the prior year. In other words, short-term traders have shown a distinct preference for Twitter Inc (NYSE:TWTR) calls over puts, today notwithstanding.

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