Last Tuesday the latest occurrence of #takeover chatter hit #Twitter (TWTR). If we don’t sound skeptical by emphasizing the hashtags; we are. Nonetheless, getting past the hopeful tweets we do like the weekly TWTR chart and doubly like the risk-to-reward offered by a Twitter stock bull call spread.
If it’s not in the healthcare or insurance space, it’s probably less likely to be a real takeover target these days. And if it’s Twitter, it’s considered even more suspect that a buyer is really, truly “liking” Twitter stock.
If investors aren’t up to speed, last week’s buzz isn’t the first to move through the rumor mill for Twitter stock. Following Twitter’s dismal earnings release, Google (GOOGL,GOOG) was bandied about as a possible suitor.
A case was made for Google buying Twitter stock by analysts at MKM Partners, but the would-be union failed to be given lip service by Google. However, a new microblog partnership between the two companies has found some quick traction.
Twitter Stock He Said, She Said
The muscle behind Tuesday’s share lift which saw Twitter stock surge by nearly 6% was tied to wishful buzz of Facebook (FB) “liking” Twitter as a buyout target.
That same day Fox Business reporter Charlie Gasparino was found tweeting that his banking sources “think Twitter would be open to selling the company.” Incidentally, Charlie’s old employer CNBC had a “probably not” message regarding interest by Facebook for a reported $44 or $45 all equity deal that would price TWTR stock at $35 billion.
Optimistically and as a contrarian, the use of “brain drain” and “knuckleheads” as colorful Twitter headline adjectives from a couple of our referenced articles do give some support that maybe things can be turned around for Twitter stock and the company too.
Twitter Stock Weekly Chart
Looking at the weekly chart of Twitter stock and it too, along with the aforementioned headline bashing of Twitter, goes into the contrarian, some might say sadistic, category of appreciating the stock as one that can (miraculously) turn higher from current levels.
What I like about the Twitter stock chart and unlike regarding the more suspect Facebook interest are the two massive corrections since its October 2014 highs. The pattern takes on the shape of a “W” undercut base with the recent hammer low acting as the second lower low pivot.
Lastly, shares of TWTR are also in oversold territory on the weekly stochastics, which acts as additional support for a bottom. Using downside of 7% that incorporates the hammer low plus a little wiggle room as a stop for a bull call spread in Twitter stock, and I like this play even more.
Twitter Stock Bull Call Spread
Reviewing the Twitter stock options board and one spread that I like is a very simple Jul $34/$36 bull call spread for $1.10. With shares of TWTR at $35.72, the spread is almost fully in the money and would allow a profit of 62 cents at expiration if Twitter stock simply stood pat.
If Twitter stock pushes slightly higher the trader would capture a gain of 90 cents at expiration. With a move of less than 1%, the bull call spread can return 81% in two weeks’ time as the spread widens to its maximum width of $2 above $36 and do so without bearing earnings risk.
As of this writing, investment accounts under Christopher Tyler’s management currently maintain a hedged position in TWTR stock and TWTR options. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
