Twitter Inc (TWTR) Option Bulls Not Swayed By Shareholder Suit

Twitter Inc (NYSE:TWTR) call options are hot, even as the social media stock deals with a new shareholder lawsuit

by Celeste Taylor

Published on Sep 19, 2016 at 12:40 PM
Updated on Jun 24, 2020 at 10:16 AM

In the latest Twitter Inc (NYSE:TWTR) drama, the social media stock is facing a lawsuit from one investor who claims shareholders were misled about TWTR's growth metrics. Doris Shenwick says that TWTR executives made "materially false and misleading statements" that "caused the price of Twitter common stock to be artificially inflated" between its fourth-quarter 2014 and first-quarter 2015 earnings. TWTR is currently down 3.9% at $18.36, but option players are remaining bullish.

In the option pits, calls have more than doubled puts today, with 49,000 calls crossing the line so far. The newly front-month October 20 call is among the most active options so far, with possible buy-to-open activity spotted, indicating traders are betting on a breakout above the $20 level by the time the calls expire on Oct. 21. This strike is already home to peak call open interest in the October series, which could reinforce resistance in the near-term.

In addition to this options-related resistance, TWTR shares have historically encountered a speed bump in the $20-$21 region, with TWTR failing to notch a close north of $21 since early January. TWTR shares have lost over one-third of their value year-over-year, although the stock seems to have found support from its 200-day moving average as of late. 

Today's appetite for calls isn't a new phenomenon in the TWTR option pits. TWTR's 20-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 3.23, indicating more than three calls have been bought to open for every put over the last four weeks. What's more, TWTR's Schaeffer's put/call open interest ratio (SOIR) of 0.34 sits at an annual low, suggesting short-term option players haven't been more call-skewed at any other point in the last 12 months.  

Now looks like the time to buy short-term TWTR options, with the stock's Schaeffer's Volatility Index (SVI) of 51% sitting in just the 9th percentile of its annual range. This suggests relatively muted volatility options are currently being factored in to Twitter Inc (NYSE:TWTR) near-term option prices

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