When Twitter reported its earnings following the closing bell last week, options traders are betting on a smaller-than-usual move for the said commodity-based stock.
Twitter shares might even move 12 % in either direction through last week based on the pricing of an option strategy coined as a straddle based on the Trade Alert data.
While it may appear that it will be a big move for many stocks, Twitter is no stranger to erratic swings following earnings after the company went public last November 2013. The average post-earnings move over the last four periods was 15.6 %. The median move was 14.9 % at the same time.
The straddle strategy involving buying put options and call options struck price near the stock’s present price in order to hedge out the direction of the move. As the price of the new strategy rises, so does the magnitude of the expected move. A call option grants the first right to purchase shares of the underlying stock at a specific price by a certain time. Put options grant the right to sell said shares.
A bullish bet was the largest option trade made last week. An investor bought 7676 weekly call options with a strike of $44 that will expire last February 13. The trade represents that a bet that Twitter shares did push above $44 on the expiration. This is approximately 6 % higher than Twitter’s total current stock price of $41.47.
Twitter’s total open interest or the number of options contracts that exists has diminished from its highest level. There was an estimated 1.8 million options contracts for Twitter last week alone as against a high of almost 1.8 million back in November based on the Trade Alert data.
Nine of the ten most-active Twitter options last week were regarded as options. It is not always telling whether calls are being bought or sold and one way to determine if a trade is bullish. However, if there are more calls than puts then it is natural to create a bullish set-up.
Moreover, Twitter shares have jumped 11 % this week alone and are up 16 % so far this year. The stock has cascaded 37 % in the last 12 months.
Finally, Twitter reported its fourth-quarter earnings following the bell last week and analysts surveyed by Reuters expect that Twitter will post a loss of 24 cents a share and revenue of $453.1 million which excludes expenses in the likes of stock compensation, which they expect a profit of 6 cent a share respectively.