Profit from Twitter Inc While We Wait Out the Headlines

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TWTR - Profit from Twitter Inc While We Wait Out the Headlines

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Twitter Inc (NYSE:TWTR) fell 12% on Tuesday when a nasty headline broke out from Citron Research. This makes it a correction of more than 20% since the recent high.

Timing was key for TWTR.  First, Facebook, Inc. (NASDAQ:FB) headlines raised serious concern over the integrity of social media companies and their user data handling. Now Citron suggests that there is something more to fret about inside TWTR.

Other social media companies like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are also suffering. But the Citron headline pointed the finger directly at TWTR, so its punishment was harshest. Since markets are already nervous as the CBOE Volatility Index, or VIX, is high, traders hit the sell button in droves. Twitter’s nice run of late probably made the decision easier.

Technically, TWTR was already vulnerable. It already had a bearish pattern looming and a massive open gap from the February earnings spike. Once the price crossed the trigger, it was almost inevitable. Now it has completely priced the measured move and is inches away from closing the open gap.

There could be more red in the near term. Long term, however, the thesis should be unchanged.

This is not to say that I buy the shares here and wait. I am not that brave. Even after this dip, Twitter stock is still up 15% in three months so there might me more red to go. Compare that to GOOGL, which is down 5% for the same period.

Instead, I will use options to generate income from what others fear. I have more faith in the support below than what could be upside potential. The cheaper it gets the harder it will become to sell TWTR stock. After all, it is the unofficial White House mode of communication. President Donald Trump makes it impossible for users to ditch the platform use.


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Moreover on the threat of data mishandling on TWTR, I don’t believe there is much to fret. Speaking from my own use, there is little that they could sell to their clients that would hurt me. Nevertheless, the headline threats to the stock are real … but therein lies the opportunity.

It’s not all roses though. I don’t think that management has yet figured out how to truly make money, so for now it remains a trading vehicle, not a conviction buy. I am willing to risk owning it, but much lower than its current price.

Wall Street experts are no help to me here since they are mostly in a holding pattern on TWTR, so I consider this a speculative trade inside a conservative portfolio. I will use tight stops just in case the market malaise proves too much for bulls in April.

TWTR Stock Trade Idea

The Bet: Sell the TWTR Sep $19 put for $1.10. Here I have a 80% theoretical chance of success. Otherwise and if price falls below it then I would suffer losses below $17.90.

Selling naked puts carries big risk, especially for a stock as expensive and as volatile as this. For those who want to mitigate it, they can sell a spread instead.

The Alternate Bet: Sell the TWTR Sep $19/$17 bull put spread where I have the same odds of winning. Then the spread would yield 20% on risk.

Get my free newsletter and subscribe to my YouTube channel 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 as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/get-free-profits-from-twitter-inc-twtr-stock-while-we-wait-out-the-headlines/.

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