Spectators wondering if Twitter Inc (TWTR) would ever rise again now have reason for optimism. A bottoming process in beaten-down Twitter stock has taken root, and bullish signs are multiplying. It remains to be seen if the blue bird’s revival will be as epic as its post-IPO ascension to $70, but at this point, any type of upside would be a welcome development.
2014 was a disappointing year for TWTR shareholders on a number of fronts. Three of its four earnings announcements were met with mass selling, a summer recovery attempt failed miserably, and the stock ended the year 43% lower than it began.
The long-term trend in Twitter stock is still a mess, but some green shoots have appeared in recent weeks. A subtle series of higher pivot lows have developed, showing a slight increase in aggression from dip buyers. TWTR scored two accumulation days this week, driving it to near-term resistance around $39. And finally, the RSI indicator is flashing a bullish divergence, suggesting the downtrend in Twitter stock might well be bottoming.
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The market in TWTR options is warm and inviting; bid/ask spreads are tight and strike prices plentiful. What’s more, the low price tag of Twitter stock keeps the margin requirement on any naked option selling strategies minimal, thereby boosting the potential return on investment.
Traders comfortable betting TWTR won’t decline much further any time soon could sell out-of-the-money February put options. Currently the Feb $33 put can be sold for $1.05 credit. If TWTR remains above $33, the put will expire worthless, allowing you to pocket the $1.05 reward.
By selling the put, you are obligated to buy the stock at $33 should the put reside in-the-money at expiration. In light of the initial credit received, your cost basis would be a mere $31.95, which is an 18% discount to current prices.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
