This morning Twitter was upgraded at JP Morgan from Hold to Buy, raising their price target from $54 to $64, as a result of greater confidence in the bull case that recent improvements to on-boarding should aid user growth, increase engagement and continue to show gains in mobile advertising. It all makes sense to me. It is one of the reasons that I bought the stock (read here) back on July 29th prior to the company’s Q2 earnings report below $39. A few weeks ago, I sold half of my position as I felt sentiment had swung from despair to exuberance in a matter of weeks, and have been considering closing the other half with a couple closes below $50.
This morning, the stock gave up its opening gains of nearly 3%, and stopped almost to the penny at $50, and has since made new highs on the day:
On a longer term basis, $50 is emerging as a fairly important technical level, as it was the high on the opening day of its IPO last November (green circled below), the low of the gap lower following its Q4 results in early Feb (yellow circle), and then the breakout level at the end of August (red circled):
I know, I know, $50 could just be a fairly random line on a volatile chart, but I have sort of set a mental stop there, and I can assume others have. A few closes below that level and the stock could be establishing a new range below the uptrend that has been in place since the May lows. This could signal a clear break in momentum.
I would add that despite the company having yet to announce their Q3 reporting date, implied volatility, the price of options looking out 30 days is already approaching levels last seen just before their Q2 report in late July.
If options prices were to continue to rise this could create an attractive opportunity to sell calls against long stock to add yield. For instance with the stock $51.74, you could sell the November 60 call at 1.65, or 3% of the underlying stock price. If the stock were $60 or higher on November expiration, your stock would be called away, up 16%, but your callaway level would actually be $61.65, up 19%. Not a bad return in less than 7 weeks. on the downside, the call sale basically gives you a buffer back to the important $50 technical support level.
At the moment I am not overwriting the stock, as I have my finger on the trigger for the balance of the position, but would consider if vol increases substantially in the next couple weeks and the stock were to hold $50.