Twitter Options Trader Braces for Another Big Earnings Reaction

Twitter was targeted for a long straddle last Thursday

Managing Editor
Apr 23, 2018 at 11:31 AM
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Social media giant Twitter Inc (NYSE:TWTR) has had plenty of bullish buzz ahead of its first-quarter earnings, which are expected to roll out this Wednesday, April 25, before the market opens. Just ahead of this event, TWTR made Schaeffer's Senior Quantitative Analyst Rocky White's list of 20 stocks that saw the heaviest weekly options volume during the past 10 trading days, which can be seen below. (New additions to the list have been highlighted in yellow.)

MAO Weekly Options Chart APril 23

Twitter stock is down 0.6% to trade at $31.73, even after Wedbush said it anticipates modest user growth and revenue in the first quarter and adjusted earnings to arrive at the high-end of guidance. However, the shares have gained almost 117% over the past 12 months, and took a sharp bounce off their 80-day moving average after pulling back from their March 14 two-year high of $36.80.

The stock could be in for a volatile day of trading on Wednesday, too, if history is any guide. Over the past eight quarters, the stock has averaged a 12.1% swing in either direction the day after the company reports -- though it's evenly split as to whether the reaction has been positive or negative. This time around, the options market is pricing in a much larger-than-usual 22.5% next-day move, per Trade-Alert.

One options trader appears to be bracing for another post-earnings swing. Specifically, the stock's June 30 call and put have seen the largest increases in open interest over the past 10 days, mostly due to the purchase of a long straddle last Thursday for $5.93 per spread. If this is the case, the speculator expects TWTR to perforate either breakeven rail of $24.07 or $35.93 (strike less/plus the premium paid) by June options expiration.

One thing working in the straddle trader's favor: Twitter stock has handily rewarded premium buyers over the past year. The stock currently sports a Schaeffer's Volatility Scorecard (SVS) of 96 out of 100. This means the equity has tended to register bigger price swings than its options premiums have priced in over the past 12 months.


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