2 Bearish Short-Term Trades for TWTR Stock

Advertisement

Twitter Inc. (TWTR) has been front and center for many traders during the past month, with many looking for either a rebound in the shares or for the bottom to finally fall out. TWTR stock is only down about 2% year-to-date, but the shares have plunged sharply from their March highs, shedding more than 32% in the past couple of months.

With earnings still weeks away, TWTR is still facing stiff headwinds.

TWTR 7-6-2015

From a technical perspective, TWTR’s short-term outlook is not all that promising.  The shares have drifted lower for the past month, breaching support at $40 and pulling back to threaten the $35 region.

In fact, TWTR is looking at near-term support near $34, with longer-term support near $33.50 — home to its 52-week low.

The shares are also seeing pressure from their 10- and 20-day moving averages. And even Google (GOOG) (GOOGL) buyout rumors were unable to lift TWTR stock for long.

On the analyst front, pessimism is beginning to take hold.  According to data from Thomson/First Call, TWTR stock has attracted just 15 “buy” ratings, compared to 23 “holds” and one “sell” rating.  The 12-month price target, meanwhile, rests at $45.50, representing a healthy premium of about 27% to Thursday’s close.

In the options pits, sentiment is mixed toward TWTR stock. Weekly Jul 10 series options are betting heavily against TWTR, with the put/call open interest ratio arriving at 0.90, placing puts and calls in near parity with each other. Pulling back to look at all July options reveals a put/call open interest ratio for 0.45, with calls increasingly popular at later dated options.

Overall, July implieds are pricing in a move of nearly 5% for TWTR stock, placing the upper bound at $37.75, while the lower bound lies at $34.25. Keep in mind that this activity does not include Twitter’s July 29 second-quarter earnings report. Short term options traders will want to wait just a bit longer for implieds to settle out a bit before positioning ahead of this event.

2 Trades for TWTR Stock

Put Spread:  With earnings still weeks away, and little else to drive TWTR stock, the shares should be left to drift lower, or could even be forced lower due to broader market headwinds. As such, traders might want to consider a Jul $34/$35 bear put spread.

At last check, this spread was offered at 39 cents, or $39 per pair of contracts. Breakeven lies at $34.61, while a maximum profit of 61 cents, or $61 per pair of contracts, is possible if TWTR stock closes at or below $34 when July options expire.

Call Sell: If betting directly against TWTR stock isn’t your style, you might consider entering a weekly Jul 10 series $38 strike call sell position. Such a trade is especially useful if you already own TWTR stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $38.

At last check, this option was bid at 27 cents, or $27 per contract. A sold call allows you keep the premium as long as TWTR stock closes below $38 at expiration. On the downside, if TWTR rallies above $38 prior to expiration, you could be forced to provide 100 shares at TWTR’s current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/2-bearish-short-term-trades-twtr-stock/.

©2024 InvestorPlace Media, LLC