Pre-Earnings Call Buying Picks Up On Twitter Inc (TWTR) Stock

Options traders have been returning to Twitter Inc (NYSE:TWTR)

Feb 2, 2017 at 3:14 PM
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Twitter Inc (NYSE:TWTR) is higher, after shares of Facebook Inc (NASDAQ:FB) hit a post-earnings record peak -- although FB stock was last seen trading lower. Nevertheless, TWTR is keeping its head above water, up 1.1% at $17.44. Options traders appear to be betting on the shares maintaining this positive price action over the next several weeks -- a time frame that includes the social media firm's own quarterly earnings results, due ahead of the open next Thursday, Feb. 9 -- with call volume ramping up in recent weeks.

Taking a quick step back, interest in TWTR options has been lackluster of late, with put and call open interest hitting a 12-month low on Jan. 23. While both metrics have been on the rise over the past week, call open interest of 679,073 contracts is still docked in the low 2nd percentile of its annual range. As a point of comparison, 419,596 puts are currently open on TWTR -- lower than 86% of comparable readings taken in the last 12 months.

Nevertheless, options buyers at the major exchanges have been initiating long calls over puts at a rapid-fire rate in the past two weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 71,520 TWTR calls in the last 10 sessions, compared to 16,931 puts. What's more, the resultant call/put volume ratio of 4.22 ranks in the 74th annual percentile.

The 17 strike has been particularly popular among near-term call traders, too, with the weekly 2/3, 2/10, and 3/3 17-strike calls seeing some of the biggest increases in open interest over the past 10 sessions. Data from the ISE, CBOE, and PHLX -- as well as Trade-Alert -- confirms significant buy-to-open activity at each strike, suggesting traders are betting on TWTR to settle above $17 at the respective options expirations.

Today, amid a relatively low-volume session in TWTR's options pits, the weekly 2/3 17.50-strike call is most active -- with 5,591 contracts traded. It's possible speculators are purchasing new positions here, looking for the stock to break above $17.50 by tomorrow's close, when the weekly series expires.

Despite this recent rush toward long calls, TWTR's technical trajectory and post-earnings price action do little to warrant such optimism. The stock has shed 31% since making an M&A-inspired run above $25 in early October -- and is one of just three social media stocks we follow trading below its 80-day moving average. More recently, the shares have been wallowing below their formerly supportive 200-day moving average amid relatively muted price action. According to Trade-Alert, TWTR's 30-day historical volatility (HV) of 24.3% ranks in the 2nd percentile of its annual range, as does its 60-day HV of 32.5%.

twtr daily since feb 2016

Plus, while TWTR has a history of moving wildly in the wake of the company's earnings reports -- the stock has averaged a single-session post-earnings move of 9.7% over the past eight quarters -- the majority of the action has resolved to the downside. Specifically, Twitter Inc (NYSE:TWTR) has closed lower in the session subsequent to reporting in six of the past eight quarters, averaging a loss of 10%.

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