Name That Trade – $TWTR: Bird Watching

by Dan April 2, 2015 3:48 pm • Commentary

We have traded Twitter well over the last year, with a few instances getting long, or replicating long exposure in the highs $30s and selling in the high $40s/low $50s (read recap and thesis (herehere and here).  Shortly after the company reported their Q4 results in early Feb I exited my most recent trade (here),  but the stock’s resilience in the weeks following caused me to have a little seller’s remorse, and I bought some stock as a place holder, from Quick Hits:

Mar 2 2015, 3:15 PM

Dan: I have been in an out of TWTR a few times the last year, recently sold after earnings when stock was $47.60, I just added a little back at $48. not posting on this, as I am really looking for the right options strategy but stock as acted well and was having a little sellers remorse.

Well, with the stock at $50, and earnings (which should be the next identifiable catalyst) not until late this month I want to now look at a defined risk trade structure that would give me exposure back to the 52 week highs at $56.  Please read the above links on the thesis front, frankly I am not too optimistic substantial gains in users, and am more focused on the potential for some sort of strategic partnership of possibly even m&a.

Early next week I will look to place an options trade that gives me some added leverage to my long stock position. If I am of the mindset that I would buy stock on a pull back in the mid $40s then the following trade may just do the trick:

Hypothetical Trade: TWTR ($50.25) Sell May 45 Put to Buy May 52.50 / 57.50 Call Spread for Even Money

-Sell to open 1 May 45 put at 1.35

-Buy to open 1 May 52.50 call for 2.60

-Sell to open 1 May 57.50 call at 1.25  

Break-Even on May Expiration:

Losses: below $45 down 10%

Profits: between 52.50 and 57.50, make up to 5, or 10%

Rationale:  This trade is a good way to add leverage to an existing long, especially if I would be inclined to add to my long down 10%.

If this was a new bullish position I would look to lengthen the duration of the trade and possibly widen the upward bands of potential profitability.  I will be checking back early next week for the trade. I AM NOT TRADING IT TODAY.

Stay Tuned.