Since I last looked at cloud communications firm Twilio Inc (NYSE:TWLO) on Dec. 15, the shares have not moved exactly as I might have suspected. The company’s post IPO lockup period came to an end on last Wednesday, and not only did TWLO stock not fall, the shares rallied more than 15%. It was a devastating blow to weak-handed short sellers, but for those with the wherewithal to tough it out, it was an opportunity to double down.
Click to Enlarge In the session immediately following TWLO stock’s rally, the shares sharply reversed course, giving back more than 9%.
It seems that Twilio bulls didn’t have the buying power to push the stock north of resistance at its declining 50-day moving average. Short-term support appear to be holding in the $32 region for now, and the shares may even drift higher amid light holiday volume through the end of the year.
But when Wall Street comes back from break, the game may be set to change for TWLO stock.
The picture largely remains the same when we look at TWLO stock’s brokerage backdrop. Zacks still reports that six of the eight analysts following Twilio rate the shares a “hold” or worse. The consensus price target has ticked higher to $39.14 from $38.17 on Dec. 15, but the upward revision has done little to improve the stock’s overall standing — especially since upgrades didn’t follow with the price-target increases.
Options traders also remain bearish on TWLO stock. In fact, the January 2017 put/call open interest ratio ticked higher from its Dec. 15 reading of 0.98 to its current perch at 0.99. In other words, TWLO’s recent mood swings only increased trepidation among speculative traders.
January 2017 implieds have come down from their lofty heights of an 18% move for TWLO stock through expiration, and now rest at an expected move of about 13.7%. The upper bound now stands at $36.66, while the lower bound lies at $27.84.
2 Trades for TWLO Stock
Bear Put Spread: I’m standing by my bearish take on TWLO stock, though my previous recommendation for a January 2017 $25/$27 put spread now seems a bit too aggressive. If you got into this trade, it still has potential, but the odds of realizing a maximum profit are now lower than I would like.
Keeping that same theme, a January 2017 $30/$31 bear put spread looks a bit more achievable. At last check, this spread was offered at 71 cents, or $71 per pair of contracts. A maximum profit of 29 cents, or $29 per pair of contracts, is possible if TWLO stock closes at or below $30 when January options expire.
Put Sell: On the positive side, the January $24 put sell has an even better chance of finishing out of the money, and if you got in, continue to hold this position. If not, then you might consider a January 2017 $27 put sell position.
At last check, the Jan $27 put was bid at 66 cents, or $66 per contract. As long as Twilio stock trades above $27 through January expiration, traders pursuing this strategy will keep the $66 premium. If TWLO trades below $27 ahead of expiration, however, you could be assigned 100 shares for each contract sold at a price of $27 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
