Since Twitter’s Nov 7th IPO, the stock has traded in a fairly symmetric range, basically making highs on its debut at $50 and a low just below $40, while currently trading at about $45. Looking at the technicals of a stock that only has 21 trading days under its belt is not particularly useful, but for those looking at potential options trades, the range can at least help inform strikes, and offer a mild guide for support and resistance levels. The TWTR chart since inception below bears this out:
Most analysts have initiated coverage on the stock this week and for the most part have a fairly neutral to negative with 9 Buys, 10 Holds and 6 Sells with an average 12 month price target of about $40, or 12.5% below where the stock is currently trading.
The company is not expected to report Q4 earnings until the last week of January, so it is essentially devoid of catalysts between now and then, aside of course from the broad market movements.
Your guess is as good as mine on the day to day, but my sense would be at some point in the near future the stock makes a move for that high of $50.
Implied vol is nuts in the stock, and given its recent bounce of $40, I want to look for a way to finance the calls that I want to buy, which leads me to a call calendar.
TRADE: TWTR ($45) Bought Dec Reg / Jan 48 Call Spread for 1.00*
-Sold 1 Dec Reg 48 Call at .60
-Bought 1 Jan 48 Call for 1.60
* I am bidding 1.00 and will pay 1.05 by the end of the day, will update in quick hits and then update in post when executed.
Break-Even on Dec Expiration:
Profits are maximized at $48. Slight moves above and below that strike are also profitable with big moves higher or lower putting the structure at risk of losses on expiration.
-Maximum risk is 1.00
Trade Rationale: If the stock remains range bound, those Jan 48 calls that I own will likely remain in play, and after the Dec calls that I am short, assuming the stock is below $48 on Dec expiration, expire worthless, then I will either look to turn into a calendar again, or look to turn into a vertical call spread by selling a higher strike call in Jan.
MY VIEW on the Company and the Stock in a Nutshell:
I would also add that while I am not a fan of most of the new media stocks, and have had bearish positions in a few of late (P, YELP & Z), I view TWTR entirely different from the former. The company is a very unique property, despite its valuation, I suspect that investors have a sort of AH-HA moment at some point in the next year (similar to FB’s Q2 results back in July) and get a bit more comfortable with what will be an unsettling valuation on the stock for some time to come. While I am very bullish on the company’s prospects I can’t say that I would buy the stock here, which is why I am looking to leg into bullish options trades with defined risk.