Equities took another plunge into the abyss today, but the depth of the dive varied depending on the stock. Some shining names were able to escape the free fall altogether. Twitter (TWTR) is one of them. Which, honestly, is kind of surprising.
The blue bird has been wounded badly this year, and weakness has been its companion month in and month out. If this week is indicative of what the future holds for TWTR stock, then perhaps better times lie ahead.
Although the price trend of Twitter stock remains down, its behavior during the recent bounce has been impressive, and TWTR is now up 11% in the last five days against a loss of a percent for the Nasdaq.
Ever since last week’s China-induced crash, TWTR has exhibited relative strength, falling less and rebounding more than most other stocks.
Well done, Twitter. Well done.
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On the options front, prices remain elevated. The wild twists and turns of the markets have been increasing the flow of demand for options and driving implied volatility toward the upper end of its one-year range.
Twitter stock’s IV rank is perched at a lofty 80% — which is one of the higher readings on the board today — making short option strategies an attractive proposition.
Twitter Puts for the Win
If you’re fishing for a bottom in Twitter stock, consider using options to increase your odds of success. Rather than placing a buy limit order beneath the current stock price, you could sell a put option and get paid to buy the stock at a lower price.
That’s what you call a win-win. Here’s how:
Sell the Oct $23 put for 77 cents. If the Twitter stock price remains above $23, the put will expire worthless, allowing you to pocket the 77 cents. If TWTR takes another nose dive and settles below $23, you will be obligated to buy 100 shares of the stock at $23. But, because of the 77-cent premium received, your true cost basis will be $22.23, a hefty 20% discount to the current price.
Not a bad price if you’re already a willing buyer of Twitter stock.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
