Amazon Update Draws Rare Batch of Call Buyers to Twilio Stock

Twilio's single-day put/call volume ratio hit an annual high on Tuesday

Sep 27, 2017 at 11:29 AM
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Shares of Twilio Inc (NYSE:TWLO) plunged 6.6% on Tuesday, after, Inc. (NASDAQ:AMZN) unveiled details of its recently launched two-way messaging service from Amazon Web Services. While this was initially seen as new competition for the cloud company, a post-close tweet from Twilio CEO Jeff Lawson pointed to a partnership with Amazon. In reaction, TWLO stock is up 7.8% today to trade at $29.67, and options traders are doing a quick about-face.

At last check, 6,352 calls and 1,079 puts have traded on TWLO -- four times what's typically seen at this point in the day. The weekly 10/6 31.50-strike and 10/27 32-strike calls are most active, and it looks like new positions are being purchased. If this is the case, the goal is for TWLO stock to break out above $31.50 by next Friday's close and $32 by the close on Friday, Oct. 27, when the weekly series respectively expire.

Today's call-skewed trading runs in sharp contrast to Tuesday's action in Twilio's options pits. Nearly 8,000 puts and 2,701 calls changed hands yesterday -- double the average daily volume. Highlighting the extreme bias is the stock's single-day put/call volume ratio, which topped out at a 52-week peak of 2.95.

Most of Tuesday's trading centered at the weekly 9/29 27- and 27.50-strike puts. It looks as if options traders bought to open the puts, betting on TWLO shares to close below the strikes upon expiration at this Friday's close.

More broadly, options traders have been buying to open puts relative to calls at an accelerated clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TWLO's 10-day put/call volume ratio of 0.65 ranks higher than 98% of all comparable readings taken in the past year. 

This skepticism is seen elsewhere, too. Although short interest is down 26% from its July 1 record high, there are still 15.28 million TWLO shares sold short -- 30.84% of the stock's available float. At the equity's average pace of trading, it would take short sellers nearly three weeks to cover all these bearish bets.

A continued rise by Twilio stock could certainly encourage more short selling. Since hitting a record low of $22.80 on May 8, the shares are up 30.5%. Plus, today's pop has TWLO back above its 80-day moving average -- a trendline that helped boost the shares to a year-to-date high in early August.

twlo stock daily price chart sept 27


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