This morning CNBC’s David Faber spoke of the possible interest of activist investors in Twitter (TWTR), watch here:
— Squawk on the Street (@SquawkStreet) September 1, 2016
Faber is careful to note that the chatter and sort of accumulation in the stock is the sort that goes on with plenty of other stories that eventually amount to nothing. This morning’s surge above $20 capped a two rally of 10% following a Bloomberg interview Tuesday night of TWTR co-founder and board member Ev Williams where he said:
“We’re in a strong position now, and as a board member we have to consider the right options.”
This of course lead some to believe that the board is a bit more open minded than previously thought about exploring strategic alternatives as we approach the one year anniversary of CEO Jack Dorsey’s return to the company.
So let’s go to the options…
Call volume exploded today, exceeding yesterday’s 170,000 contracts, 6x that of puts, but much of today’s call activity looks to be closing of prior bullish bets. The largest trade of the day was a closing call sale (3k of the Dec 20 calls at $2.35). It happened around 10am, right after the stock was coming off of its early morning surge above $20. The Dec 20 calls were the most active strike with 19,399… trading most in blocks and on the bid, suggesting they were sold and closing versus the open interest of 45,000.
The four day chart below show’s today’s follow through and subsequent pullback, which has been accompanied by selling to close in Sept & Dec 21 and 2o calls respectively.
The most interesting technical occurrence this week may be the may be what some technicians call a Golden Cross where the short term moving average is crossing above the longer term at technical resistance. In the case of TWTR, the stock’s 50 day moving average (purple) has converged in a rising fashion with the 200 day moving average (yellow):
Whether you believe in the significance of technical crosses or not, the $21 level is a significant one in terms of resistance in 2016. I will also note that the stock has about 10% short interest, which makes short term squeezes like we had this week a consistant possibility on the slightest bit of news.
For a whole host of reasons over the last year, and twice since late July we have detailed long stock alternatives with options in TWTR for those looking for better defined risk long entries (here and here). In hindsight, given the stock’s rangebound action between $20 and $15 for most of the year, selling puts to buy calls or call spreads with minimum premium outlay has far outperformed long stock on a risk reward basis.
Like most of its investors, I remain frustrated with the company’s lack of user growth, the massive deceleration in sales growth, and the lack of meaningful product improvements. But I remain very bullish on the service, the scarcity of the property and the relative cheapness ($12 billion enterprise value) vs comps, specifically Snapchat which is private, but recently valued at $20 billion despite having a fraction of TWTR’s sales. Its my belief that TWTR will not be a standalone forever, and I consider Alphabet the most obvious buyer as TWTR checks a few boxes for them in mobile messaging / social and most importantly one of Google’s few blind-spots with real-time search.