Twitter Inc: 2 Trades for a Middling TWTR Stock

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Twitter Inc (NASDAQ:TWTR) will step up and enter the earnings limelight after the close of trading tomorrow afternoon.

Wall Street’s expectations have declined significantly from year-ago levels, with many analysts speculating that the company will eventually be snapped up by the likes of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) or another tech giant with deep pockets. Still, TWTR stock has shown some resilience recently, and Twitter shares makes a good options play heading into tomorrow’s report.

Diving straight into the numbers, Wall Street is expecting earnings to rise 43% year-over-year to 10 cents per share, with revenue seen adding 20.8% to $606.77 million. While growth looks solid, most of Twitter’s troubles have come from stagnating user growth, which has fallen considerably behind most other competitors in the social media space.

Expectations are rather mixed within the brokerage community. While EarningsWhisper.com reports a whisper number of 15 cents per share — five cents better than the consensus — only eight of the 26 analysts following TWTR stock rate it a “buy” or better.

Furthermore, the past six analyst actions (dating back to April 27) have been downgrades. Given this backdrop, there is plenty of upgrade room, but Twitter would need to show some serious user growth to turn back the bearish tide.

TWTR stock
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Options traders, meanwhile, are heavily bullish on Twitter’s prospects ahead of earnings. Currently, the July/August put-call open interest ratio for TWTR comes in at 0.61, with calls easily outnumbering puts among near-term options.

What’s more, this ratio plunges to 0.41 when we look at just the weekly July 29 series of options (i.e. those that are most affected by Twitter’s earnings).

Overall, weekly July 29 series implieds are pricing in a potential post earnings move of about 9.5% for TWTR stock. This places the upper bound at $19.99, while the lower bound lies at $16.51.

On the upside, TWTR is looking at round-number resistance at $20, with its 200-day moving average descending into the $19.50 region. On the downside, TWTR has support near $17.50 in the form of its 20-day moving average, with additional support near $16.

2 Trades for TWTR Stock

Call Spread: It’s a long shot, but with expectations extremely low heading into this week’s report, even a slight bit of good news could pull sideline money back into TWTR stock. Traders looking to take a chance on a positive report from Twitter might want to consider an Aug $19/$20 bull call spread. At the close of trading on Friday, this spread was offered at 34 cents, or $34 per pair of contracts. Breakeven lies at $19.34, while a maximum profit of 66 cents, or $66 per pair of contracts, is possible if TWTR stock closes at or above $20 when August options expire.

Put Spread: For those not wanting to place an outright bullish bet on TWTR stock, a weekly July 29 series $15 put sell may be just the option you’re looking for. At last check, this put was bid at 12 cents, or $12 per contract. As long as TWTR trades above $15 through July option expiration at the end of this week, traders who open this position will keep the initial premium received. However, if TWTR trades below $15 before Friday’s close, you may be assigned 100 shares for each contract sold at a cost of $15 each.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/twitter-inc-earnings-preview-is-it-finally-time-to-abandon-twtr-stock/.

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