Option Bulls Target Twilio Inc (TWLO) as Lockup Period Expires

Twilio Inc (NYSE:TWLO) is trading higher and call volume is soaring, after an analyst set a lofty price target for the tech stock

Dec 20, 2016 at 1:49 PM
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Twilio Inc (NYSE:TWLO) hit an intraday high of $31.49 earlier -- last seen up 4.9% at $30.58 -- after Drexel Hamilton initiated coverage on the tech stock with a "buy" rating and $45 price target. Specifically, an analyst at the brokerage firm said Twilio's low market share in "the rapidly growing cloud communications platform market" represents a huge growth opportunity, and that its recent pullback is a result of the market discounting the shares ahead of today's lockup expiration. Plus, as Schaeffer's Quantitative Analyst Chris Prybal pointed out, today's jump put shares of TWLO north of their 160-unit trendline on a 30-minute chart for the first time this month -- and it appears today's options traders think the stock has more room to run.

TWLO 30minute chart

At last check, nearly 16,500 TWLO options had traded -- almost three times what's typically seen at this point in the day -- with 12,150 calls on the tape, versus 4,300 puts. Most active is the weekly 12/23 30-strike call, where it seems safe to assume new positions are being purchased. In other words, call buyers expect TWLO stock to extend its surge north of the strike through this Friday's close, when the weekly series expires.

Today's call-skewed session just echoes the withstanding trend seen in TWLO's options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 3,855 calls on the stock, compared to 1,768 puts.

Considering TWLO is a heavily shorted stock, it's certainly possible that some of this recent call buying is a result of short sellers hedging their bearish bets against any upside risk. In fact, short interest shot up almost 80% in the two most recent reporting periods to 10 million shares -- the loftiest amount since the stock first went public in late June.

Elsewhere on Wall Street, analysts have been hesitant to pull the trigger on TWLO, with 75% of brokerages maintaining a lukewarm "hold" rating. This skepticism isn't completely out of left field, though, considering the shares have pulled back significantly from their late-September record high of $70.96. However, what's more noteworthy is that TWLO stock has repeatedly found a foothold in the $29-$30 region -- double its initial public offering (IPO). Should the shares take a bigger bounce from this historically significant area, an unwinding of skepticism from short sellers and analysts could create tailwinds for Twilio Inc (NYSE:TWLO).

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