Bottom fishers have been circling Twitter (TWTR) for months waiting for a sign, any sign, that the wounded blue bird was on the mend.
In light of recent events I think it’s fair to say a TWTR stock bottom is now in play.
Following Twitter’s epic April dive the stock has given little reason for excitement for those clamoring for its comeback. It continued lower virtually every day with only the occasional weak up day just to keep onlookers from falling asleep.
In the past few weeks however, we’ve had no less than three bullish developments suggesting TWTR stock maybe turning a corner.
- Accumulation Strikes Back. High-volume up days, the tell-tale signs of institutions buying shares, have returned after a long absence. If the big boys are indeed wading into the waters it increases the likelihood that TWTR may well be entering some type of bottoming phase where further downside is limited.
- Shakeouts Surface. Shares of Twitter have been slippery of late. Twice TWTR has fallen below key support near $34.70 only to claw its way back above. These false breakdowns often sucker new short-sellers into the stock which act as cannon fodder during future rallies. That is, they are apt to get squeezed out if the stock rises which adds further fuel to any type of upside price movement in the stock.
- Premium Inflation. Perhaps the biggest reason preventing option traders from entering the fray has been the lack of premium available. Due to Twitter’s incredibly dull behavior of late, option premiums have been flaccid. And yet, with the events of the past week — takeover rumors and whatnot — option values have ballooned once more. Option selling strategies are now on the table.
Naked TWTR Puts for Bottom Fishers
Those looking for a high probability avenue for profiting from a Twitter stock bottom could sell the Aug $31 put for 86 cents or better. Consider it a bet that TWTR remains above $31 over the next month.
The maximum reward is 86 cents and will be captured provided the put option expires out of the money. Your probability of capturing the maximum profit stands at about 80% right now.
By selling the put you obligate yourself to buy 100 shares of TWTR at $31 if the stock descends to that level. However, you get to keep the 86 cents premium so your cost basis would actually be $30.14, so if you’re a willing buyer of TWTR at that level you could ride the put to expiration and simply allow assignment if it sits in the money.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
