There’s important breaking news at Twitter Inc (NYSE:TWTR). And for investors, this Twitter breakout is an opportunity to profit from additional trend confirmation with reduced and limited risk using a near-term moderately bullish options spread. Let me explain.
Shares of TWTR took off on Wednesday and, much to the chagrin of news-feed junkies, Twitter’s price move wasn’t accompanied by any stories or news drivers of interest. But don’t let that dissuade you from going long Twitter.
Bottom line, Twitter stock finished up 3.86% to fresh, near three-year highs while continuing to solidify its recently established position of relative strength over the past several months.
At the end of the day, this breakout should be enough incentive to encourage investors to take a first or another look at a company making a comeback on and off the price chart.
Technically speaking, Twitter stock’s bullish price trend found solid and additional confirmation Wednesday as shares broke out of a short four-week flat base.
Supportive and above-average volume complemented the bullish price action. And with TWTR shares just 2% above the $35 breakout level reached after its early February earnings beat, buying Twitter stock right now is promising.
As the weekly price chart shows, there’s “always a line somewhere.” Bears undoubtedly hope one of those technical lines will, at some point, act as technical resistance. Currently, the 38% Fibonacci retracement level and prior failed lateral support, could work to stymie Twitter stock.
Personally, I’m not too concerned about that type eventuality. Instead, the focus is on the here and now and how to position most effectively with the bulls in control of TWTR.
The last time I discussed Twitter, shares were just above $17 and a December $19 call was detailed as a favored strategy to get long the name. To say the least, it worked quite nicely.
Now and with Twitter stock having more than doubled and after reviewing TWTR’s calls and puts, a shorter-term moderately bullish long call butterfly spread has perked our interest.
Specifically and with shares at $35.70, the April $37/$40/$43 call combination for 50 cents looks attractive. The pricing allows for a profit range in-between $37.50 to $42.50. And with the effective holding risk approximately 1.50% of owning Twitter stock, one might ask, “What’s the catch?”
The catch or real cost with using this reduced and limited-risk strategy in lieu of TWTR is accepting the risk of shares overshooting the spread and forfeiting the small debit.
That’s why I emphasize this position as being moderately bullish. Yet, with earnings out of the picture, a potential max gain of $2.50 at $40 and some sort of profit all the way up to a move of 19% in Twitter stock — I also see the term moderately as being used quite loosely in a good sort of way.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.