Twitter Stock Pop Draws Fresh Batch of Options Bulls

Short-term traders are targeting the weekly 11/22 series today

by Karee Venema

Published on Nov 21, 2019 at 2:37 PM

Twitter Inc (NYSE:TWTR) gapped sharply lower in late October, in reaction to the social media firm's dismal third-quarter earnings report. The shares eventually found a floor near their year-to-date breakeven level at $28.74, and have since bounced more than 4% -- including today's 2.6% gain that has TWTR stock trading at $29.93.

Today's pop has sparked a rush of activity in TWTR's options pits, with most of the action occurring on the call side. At last check, more than 180,000 calls have changed hands -- two times what's typically seen at this point -- compared to around 30,500 puts. The weekly 11/22 30- and 30.50-strike calls are most active, and it looks like new positions are being purchased here, as short-term traders bet on more gains through tomorrow's close, when the weekly options expire.

This bullish bias just echoes the broader trend seen in Twitter's options arena. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 4.85 ranks in the 97th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

While some of this call buying may be of the traditional bullish variety, it's also possible short sellers are initiating an options hedge against any unexpected upside risk. Short interest on TWTR surged 27.4% in the most recent reporting period to 31.66 million shares -- the most since the Jan. 1 reporting period.

Whatever the reason, short-term TWTR options are pricing in unusually low volatility expectations at the moment, making it an attractive time to buy premium on the stock. This is per Twitter's Schaeffer's Volatility Index (SVI) of 30%, which registers in the 3rd percentile of its annual range.

twtr stock daily price chart on nov 21

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