Pessimism has risen sharply on Twitter Inc (NYSE:TWTR) in the past several weeks. Despite a star-studded list of potential suitors — including Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, Microsoft Corporation (NASDAQ:MSFT), Verizon Communications Inc. (NYSE:VZ), Walt Disney Co (NYSE:DIS) and salesforce.com, inc. (NYSE:CRM) — the Twitter buyout fizzled as spectacularly as it began. But is Twitter stock really dead in the water without a buyer?
The answer, if anyone bothered to pay attention to Twitter’s third-quarter earnings report, is “no.”
The social media company improved on many of the fronts that had driven shareholders to push for a company sale in the first place.
Adjusted earnings came in at 13 cents per share, besting the consensus estimate for 9 cents, while revenue rose 8% to $616 million, above Wall Street’s expectations for $603.8 million. Even average monthly users rose, jumping 3% to 317 million and topping expectations for 316.4 million.
The strong quarter was largely eclipsed by rumors that Disney was once again interested in buying TWTR, as well as Twitter’s move to close down Vine, its streaming video app, and cut 9% of its workforce. The Disney rumors remain rumors, while the downsizing should actually help Twitter stock rise over the long term as the company streamlines expenses.
And yet, shares of Twitter only added 2.6% from Wednesday through the close on Friday.
Twitter Stock Options
But TWTR stock could be on the verge of a sentiment shift in the coming weeks. This weekend, Canaccord Genuity boosted its price target from $16 to $18. And other brokerage firms could follow suit, as the consensus price target of $16.88 represents a discount to Twitter stock’s close at $17.66 on Friday. There is also room for improvement on the ratings front, with Zacks reporting that 21 of the 25 analysts following TWTR rate the stock a “hold” or worse.
The story is the same among short sellers. The recent selloff following the failed Twitter buyout attracted a wealth of short sellers, with the number of TWTR shares sold short jumping 16% to roughly 54 million in the most recent reporting period. As a result, some 9% of Twitter shares are now sold short, increasing the potential for a squeeze situation.
Click to Enlarge Finally, there are indications that short sellers are growing nervous that TWTR stock is due for another, more sustainable move higher.
Currently, the November put/call open interest ratio for TWTR rests at 0.55, with calls nearly doubling puts among options set to expire within the next month. When nervous, short sellers will buy calls as a hedge against a potentially damaging upside move.
For options traders, this recent attention to Twitter stock calls has pushed prices higher. At last check, implieds for Nov. 18 series options were pricing in a potential move of about 11.6% for TWTR. This places the upper bound at $19.53, while the lower bound lies at $15.47.
2 Trades for Twitter Stock
Call Spread: While news on the buyout front would be nice, Twitter Inc has other drivers that should help push the shares higher in the next several weeks — earnings, for instance, once Wall Street takes notice. TWTR is already trending higher, and a breakout above $18 could seal the deal for short-term gains.
As such, traders looking to bet bullish on Twitter stock might want to consider a Nov. 18 series $18/$19 call spread. At last check, this spread was offered at 26 cents, or $26 per pair of contracts. Breakeven lies at $18.26, while a maximum profit of 74 cents, or $74 per pair of contracts, is possible if TWTR closes at or above $19 when November options expire.
Put Spread: For those not wanting to place an outright bullish bet on Twitter stock, a weekly Nov. 4 series $16 put sell may be just the option you’re looking for. At last check, this put was bid at 7 cents, or $7 per contract.
As long as TWTR trades above $16 through November option expiration at the end of this week, traders who open this position will keep the initial premium received.
If Twitter stock trades below $16 before Friday’s close, however, you may be assigned 100 shares for each contract sold at a cost of $16 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
