Twitter Inc (NYSE:TWTR) has recently had yet another mad dash. The frenzy was again fueled by headline hopium and timely 13F’s. While I am not one to chase headlines, I do like it when I can profit off those who do.
Case in point was my most recent TWTR trade that delivered quick profits out of thin air. Today and with profits in hand, I want to reset another bullish trade but on a different time frame.
The thesis remains that TWTR the platform is incredibly valuable even though management can’t figure out how to monetize it. The hope is that someone else will, and soon. So today’s bullish setup is by no means chasing performance. I am merely selling risk against support levels that are likely to hold.
Click to Enlarge I remain highly critical of TWTR management. They have a gem and they fail to make it shine. While profitability is an issue, cost is not the solution. It all starts at the top of the P&L and they refuse to create the cash cow that should already live in their stream. Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) did it and it’s at Twitter’s hand, and yet they don’t grab it.
Technically, the recent burst in buying propelled TWTR as much as 30% higher in just 14 bars. It has since given back some but still is 20% net green.
Twitter stock has so far behaved predictably, and my chart extensions have been accurate. I expect this to continue, so I am confident of my levels even though it’s not ideal to enter long into a ticker just after a 20% rally.
The TWTR Stock Trade
The Bet: Sell the TWTR Dec $14 put and collect 65 cents to open. Here I have an 80% theoretical chance of retaining maximum profits, but if price falls below $14 I must own the shares and suffer losses below $13.35.
Since we are all waiting for a buyout headline I will not risk TWTR for balance. This would defeat the purpose.
The Spread Alternate: Those who don’t want to sell naked puts can substitute for a credit put spread instead where risk is more limited. At the same level, the spread sold would have the same theoretical certainty yet still deliver 27% yield. Compare this with risking $18 now and hoping Twitter stock rallies 27% just to match the performance of the spread.
Selling options is risk business so I risk no more than I am willing to lose.
Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
