Option Bulls Set Sights On Twitter and Yelp With Earnings on Tap

Social media stocks Twitter Inc (TWTR) and Yelp Inc (YELP) are being targeted by bullish option traders ahead of Thursday's earnings

Feb 7, 2017 at 1:22 PM
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Social networking concerns Twitter Inc (NYSE:TWTR) and Yelp Inc (NYSE:YELP) are due to report earnings on Thursday. While YELP has been a technical outperformer over the past year, shares of micro-blogging platform TWTR have struggled. Despite their different performances on the charts, bullish option traders are targeting both of these social media stocks ahead of earnings.

TWTR Traders Bet On a Turnaround

TWTR is trading higher for the day, after Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud reported a 4.9% passive stake in the social media company. So far, TWTR has jumped 3.1% to $18.49, though the shares are still down nearly 27% since M&A chatter sent the share soaring in early October, and the shares could encounter resistance at their 320-day moving average, which swiftly rejected an early December rally attempt.

Twitter Inc price chart February 2017

Drilling down, calls are leading the way in TWTR's option pits today, outpacing puts more than 2-to-1, thanks the possible closing of a call spread by one trader with 5,000 weekly 2/10 18.50-strike calls bought, and 5,000 weekly 2/10 17-strike calls sold. Today's heavy call-skew isn't unusual in TWTR's option pits, with heavy call open interest in the March series, according to data from Trade-Alert.

What's more, TWTR's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 4.85 sits higher than 86% of all other readings from the last year, indicating bullish option traders have been hitting TWTR harder than usual over the last two weeks.

Ahead of Twitter Inc's (NYSE:TWTR) Thursday morning earnings release, option players seem to be betting on a bigger-than-usual move from the social media stock. TWTR has ended lower after reporting earnings in six of the last eight quarters, averaging a single-session, post-earnings move of 9.7%. This time around, option players are pricing in a 13.3% single-day swing.

YELP Bulls Hope For Continued Upside

YELP, on the other hand, is trading 1% lower at $41.44 so far today, though the social media stock is still up 159% year-over-year. The shares have recently been led higher by their 10- and 20-day moving averages, though the stock may continue to encounter resistance in the $41-$42 area.

YELP stock news today

Drilling down, near-term traders have been call-skewed, with YELP's Schaeffer's put/call open interest ratio (SOIR) of 0.47 sitting just 16 percentage points from an annual low. In addition, YELP's 10-day call/put volume ratio at the ISE, CBOE, PHLX shows 1.12 calls bought to open for every put over the last two weeks of trading. For the day, calls are leading puts in YELP's option pits, though with a relatively low volume of 1,512 to 934.

Ahead of Thursday night's earnings, it looks like YELP option players are looking for a big post-earnings move for the stock, pricing in a single-session swing of 15.9%. Over the last three quarters, Yelp Inc (NYSE:YELP) has made notable moves to the upside in the session after earnings, averaging a single-day gain of 15.5%. 

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