Twitter Inc (NYSE:TWTR) shares were on the move Monday. The buying binge drove TWTR stock higher by 4%, making it one of the best performers on an otherwise dismal day.
While optimists are hoping this is the beginning of a glorious resurrection for the stock, I’m skeptical. For starters, we’ve seen this movie before. Buyers swarm, the blue bird flies, enthusiasm fades, and the blue bird dies.
It’s sad, really.
And, yes, the rally was accompanied by notable volume — the type of volume that adds legitimacy to price moves, making them all the more likely to follow through. Unfortunately for Twitter stock lovers, we’ve seen umpteen of these in the past. And every single one failed — most sooner than later.
Twitter’s price trend isn’t doing chart watchers many favors either. It’s a hot mess. Trendless. All the main moving averages are traveling sideways in true noncommittal fashion. Worse yet, Monday’s pop carried TWTR to the heart of its four-month trading range. Forecasting the next step of a stock sitting in the middle of a trading range is the ultimate coin flip.
But, hey, if you’re willing to bet on the bulls here I have a trade idea.
Fly, TWTR Stock, Fly!
To increase your odds of success for this admittedly “meh” setup, try selling TWTR puts. The stock’s cheap price tag will keep the margin requirement for the trade very low, and that means you have the chance to capture a decent return with a high probability of profit.
If you think TWTR stock can stay above $16 for the next month, then sell the Mar $16 put for 50 cents or better. The max gain is limited to the initial 50-cent credit. By selling the put, you are obligating yourself to buy 100 shares if the stock sits below $16 at expiration.
If you’re a willing buyer, let the trade ride. If the put sits in-the-money, you’ll purchase shares of Twitter at an effective purchase price of $15.50. If the put sits out-of-the-money, it will expire worthless allowing you to pocket the 50 cent premium.
Twitter is slated to report earnings Feb. 9 before the market opens.
At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.
