Things are heating up in stock land. The S&P 500 is up 10% in the past three weeks amid a flurry of buying as fear officially exits the building. The rush into risky assets is resurrecting many a beaten-down stock. Chief among them is the king of disappointment, Twitter Inc (TWTR).
Indeed, the blue bird is flying high once more as Twitter stock climbs 39% off its February lows. Buyers are placing an exclamation point on the rally by delivering a significant breakout, breaching resistance for the first time in five months.
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What’s more, Twitter is vaulting above its 50-day moving average revealing massive potential for a significant trend change.
Skeptics can still point to the fact that TWTR remains a hot mess on all larger time frames, but remember: all major trend reversals start from humble beginnings.
The action we’re seeing in Twitter is the most bullish we’ve seen in months. Time will tell whether this grows into a long lasting recovery.
Regardless of its eventual destiny, the budding uptrend in the Twitter stock price is trade-worthy in the here and now.
Twitter Stock Options Play
Implied volatility has dropped precipitously during Twitter’s recent rally, making option contracts a fair bit cheaper than they were heading into its mid-February earnings announcement. Traders looking for a cheap way to get in on the bullish action could buy TWTR call spreads.
To provide ample time for Twitter shares to continue recovering, we’re going to use June options: Buy the June $19/$24 call spread for $1.73 debit or better. The vertical spread consists of buying to open the June $19 call while selling to open the June $24 call.
Consider the spread an effective way of betting Twitter stock will rise to $24 over the next three months. The max risk is limited to the initial $1.73 debit and will be lost if TWTR sits below $19 at expiration.
The max reward is limited to the distance between strikes minus the net debit, or $3.27, and will be captured if the stock sits above $24 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
