The bulls’ dogged defense of the $24 zone in Twitter (TWTR) has been inspiring to watch.
They. Just. Won’t. Die.
Despite attempt after attempt from sellers to breach support and drive the blue bird to new all-time lows, TWTR stock has held.
The pop in TWTR this morning is a perfect example of the ongoing battle to determine the social media stock’s next move. Shares of TWTR stock are up 6% right out of the gate, making it one of the best performing stocks on the board today.
While the trend for Twitter remains down on virtually all time frames the, unrelenting defense of $24 does show promise. If nothing else it provides an easy level to trade around for potential low risk trades. And fortunately, I’ve got an idea for both the bulls and bears alike.
Twin Twitter Trades
If your bargain hunting has led you to TWTR stock and you’re salivating at its cheap price tag, then short puts are the play for you. Selling puts allows you to get paid for your willingness to accumulate shares down here. Plus, it sets up a potential win-win scenario.
If Twitter stock price rallies off the $24 support zone, you simply pocket the premium received at trade entry. If the stock drops, you’ll end up getting put shares of TWTR just like you wanted.
Sell the Jan $23 put for 56 cents. If Twitter stock price remains above $23 for the next month, the put will expire worthless, allowing you to pocket the 56-cent premium, which represents the max reward on the trade.
If TWTR stock breaks support and ends up below $23, you will be assigned and required to buy 100 shares of stock at $23. But, since you get to keep the original 56 cents received, your true cost basis for the shares would be $22.44.
To the pessimists among us, consider using today’s pop to buy put spreads on the cheap. Buy the Jan $26/$23 put spread for $1.06. Consider it a wager that Twitter stock price will drop to $23 by January expiration. The max loss is limited to the initial $1.06 debit and will be forfeited if TWTR stock sits above $26 at expiration.
The max gain is an impressive $2.94 and will be captured if the blue bird can fall below $23.
As of this writing, Tyler Craig had no positions in any of the aforementioned securities.
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