Once upon a time, Twitter (TWTR) stock actually went up in value. When the social media star burst onto the public scene in November 2013 it almost doubled in value right off the bat.
Then reality set in, and it was chock full of disappointment, earnings missteps and pathetic price action month after month after month.
The blue bird’s nosedive has been following the flight path of Facebook Inc (FB), only upside down.
TWTR stock owners tiring of its pain-inflicting descent will be happy to note the social media stock has thrived during this week’s stock rally. Twitter stock is up a rousing 30% since carving out a low at $13.91.
While I’d love to add that TWTR is now in a rip-roaring uptrend, I can’t. The stock has fallen so far at this point that even a 32% pop isn’t sufficient to turn its trend higher.
On the bright side, Twitter stock’s rebound transpired following its latest earnings announcement. Though the company has been disappointing shareholders quarter after quarter, perhaps the TWTR stock price has fallen far enough to adequately price in the dashed dreams of investors and economic reality of Twitter’s true value. Time will tell.
For now how about a pair of trades to consider for capitalizing on Twitter’s pop?
Twin TWTR Stock Trades
TWTR bears looking for this week’s pop to fade into oblivion like all its predecessors could buy put spreads here to profit. Buy the June $19 put for $3.15 while selling the June $13 put for 81 cents. The spread can be entered for a net debit of $2.34, which represents the max loss and will be forfeited if the Twitter stock price sits above $19 at June expiration.
The max gain is limited to the distance between strikes minus the net debit, or $3.66, and will be captured if the Twitter stock price sits below $13 at expiration.
Twitter optimists willing to wager a bottom is materializing in the massively oversold stock could sell naked puts. The combination of Twitter’s low price coupled with its elevated implied volatility is generating respectable premiums to option sellers across the board. Sell the March $16 put for 50 cents or better.
The max gain is limited to the initial 50 cents and will be pocketed if Twitter stock can remain above $16 for the next month. By selling the put you obligate yourself to buy 100 shares of Twitter if it sits below $16 at March expiration.
Those wishing to sidestep assignment could plan on exiting if TWTR stock falls below $16.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
