Trump Tweets Spark Buyout Buzz, Bullish Options Betting On Twitter Inc (TWTR)

President-elect Donald Trump has brought Twitter Inc (NYSE:TWTR) into focus, with calls trading at two times the average intraday pace

Dec 7, 2016 at 2:27 PM
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Twitter Inc (NYSE:TWTR) has been all the rage of late, thanks in no small part to President-elect Donald Trump. And while an analyst at Cowen said Trump's "emerging pattern of using Twitter as a bully pulpit to negotiating leverage over targeted businesses" was concerning, the president-elect's recent tweet about a $50 billion investment from Japan's SoftBank has renewed chatter of a potential Twitter takeover. This M&A buzz may be what's lifting the shares of TWTR today, but regardless, the security was last seen trading up 5.2% at $19.18 -- with options traders eyeing even more upside for the social media stock.

Diving deeper, roughly 115,000 TWTR calls have traded so far -- two times what's typically seen at this point in the day -- compared to nearly 38,000 puts. Most active is the March 21 call, where 9,736 contracts have changed hands. It looks like some of the activity at this out-of-the-money strike is of the buy-to-open variety, a theory echoed by data from the International Securities Exchange (ISE). If this is the case, the goal is for TWTR to break out above $21 by March options expiration.

More broadly, today's call-skewed trading just echoes the withstanding trend seen in TWTR's options pits. In the past 20 sessions, for instance, speculative players at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 152,251 calls on TWTR stock, versus 51,072 puts. Plus, TWTR's Schaeffer's put/call open interest ratio (SOIR) of 0.46 ranks in the 16th annual percentile, meaning short-term speculators are more call-heavy than usual toward the equity.

Outside of the options pits, short interest on the social media stock plunged 21.3% in the most recent reporting period. However, with a healthy 8.7% of TWTR's total float still sold short, the stock could be due for some increased volatility, as short sellers continue to readjust their bearish positions. Plus, there are currently four "strong buy" recommendations levied toward TWTR, versus 16 "holds" and five "sell" or worse suggestions. Should the stock continue to move on takeover chatter, a repositioning among analysts could create a catalyst for the shares of Twitter Inc (NYSE:TWTR).

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