Twitter Inc.: Play a Long Game With a TWTR Stock Trade

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In 2015, the stock market fell out of love with Twitter Inc (TWTR) stock, but this didn’t necessarily reflect opinion of the TWTR platform.

Twitter Inc.: Play a Long Game With a TWTR Stock TradeI am a chronic user of Twitter; I find tremendous value in the ability to reach the globe in seconds. I can even do it from my phone, and I know I am not alone in this.

On the other hand, I have the exact opposite opinion of TWTR’s management. By focusing markets on the wrong metrics, they’ve managed to destroy Wall Street’s perception of the company’s value.

TWTR stock price aside, I believe in the value of the platform itself as an asset. So, in the long term, I strongly believe that someone will eventually figure it out.

Since I have no faith in TWTR management’s ability to execute, I believe that the Twitter stock appreciation will need to come from a headline and on a spike. I want to be holding a lotto-style position whenever that happens.

How to Play TWTR Stock

Twitter Inc.
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I could buy the stock and risk $16 per share, but instead, I’d prefer to use the options market, where I can do this risking but a fraction of the TWTR stock price.

Options offer hundreds of ways to go long TWTR stock. The cheapest would be to buy weekly TWTR calls for pennies until the headline hits. However, I prefer to commit to a mid-term timeline so I don’t have to bother managing the trade on a weekly basis.

Given TWTR stock’s fall from grace I set my charts to ignore the higher prices that are now too far back to contribute to the technical perspective.

Trade No. 1: Buy the Twitter May $18 call. My maximum potential loss is the $1 I pay for the call. If the stock spikes above $18 per share, I stand to profit immediately and without limit. This move needs to happen in the next 50 days.

I can hedge trade No. 1 if I am worried about being long TWTR stock, especially since the general markets have just rallied ten percent in a month. To hedge, I can short the exchange-traded fund SPDR S&P 500 ETF Trust (SPY).

Trade No. 2 — Optional: I use this to bring me credit to finance the purchase of my Twitter calls. I sell the May SPY $214/$215 credit call spread. For this I collect 17 cents per contract. This would be a 20% yield on risk and has an eighty percent chance of success.

If TWTR stock fails to break out due to general market malaise, then I have wasted little money buying my lotto ticket.

Although I chose options that have quite a bit of time, I am not committed to hold them open for the duration. I can close any of these options trades for partial profit or loss.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.

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Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/long-twitter-twtr-stock-trade/.

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