The Bullish Contrarian Case for Twitter Inc. That Could Return 120%

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Headline news has been relatively quite for Twitter Inc (NYSE:TWTR) lately. Aside from CEO Jack Dorsey’s recent trip to Capitol Hill to testify on social media and net neutrality, there has been a lack of major news for TWTR stock.

And, as the saying goes, no news is good news.


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Since bottoming near $26.60 in early April, TWTR stock has risen more than 26%. The stock has ridden the coattails of Facebook, Inc.’s (NASDAQ:FB) social media rally. FB stock, if you’ll remember, was punished severely in the Cambridge Analytica fallout. But Facebook has since shaken off quite a bit of that stigma, and the bullish sentiment is buoying the social media sector as a whole.

As for TWTR stock, the shares have reclaimed former support at their 50-day moving average after filling in their February post-earnings gap higher. The shares have now drawn their 20- and 50-day trendlines into a bullish cross, which could be a sign of further gains.

There are two technical concerns for TWTR stock, however. First, there is resistance in the $34-$35 region that could create short-term headwinds. Second, the shares are inching closer to overbought territory, with their 14-day relative strength index (RSI) nearing 70.

Neither of these is an absolute deal breaker for TWTR stock bulls, but it could put pressure on the shares — especially if broader market sentiment shifts bearish once again.

Speaking of sentiment, TWTR stock is facing a considerable wall of worry at the moment. For starters, Thomson/First Call reports that 32 of the 36 analysts following the shares rate them a “hold” or worse. What’s more, the 12-month price target rests at $27.52 — a discount to Twitter’s current perch north of $33.50.

This configuration leaves plenty of room for both upgrades and price-target increases on any bullish headline news that might arrive for Twitter.

TWTR options traders are also increasingly negative on the shares. Currently, the June put/call open interest ratio comes in at 0.75, with puts nearing parity with calls among front-month options.

Even short sellers are getting in on the act. The number of TWTR shares sold short jumped by 15% during the most recent reporting period. As a result, more than 5% of Twitter’s float is now sold short. While this isn’t a massive amount of short-interest, it could create a minor short-covering boost if TWTR stock is able to breakout above short-term technical resistance.

Turning to implied volatility, June TWTR options are pricing in a move of about 7.85% for TWTR stock ahead of expiration. This places the upper bound at $36.27 and the lower bound at $30.99.

2 Trades for TWTR Stock

Call Spread: Given the stock’s strong price action of late, and the wealth of sideline money that could come to bear on a technical breakout, I’m inclined to bet bullish on TWTR stock heading into expiration.

Traders looking to take advantage of a continued rally in TWTR stock might want to consider a June $35/$36 bull call spread. At last check, this spread was offered at 21 cents, or $21 per pair of contracts. Breakeven lies at $35.21, while a maximum profit of 79 cents, or $69 per pair of contracts — a potential return of 122% — is possible if TWTR stock closes at or above $36 when June options expire.

Put Spread: On the other hand, the market has been quite fickle of late. Combine this with technical resistance, and TWTR stock could find itself headed back toward support in short order. While I’m leaning toward a bullish call on Twitter, skeptics would do well to consider a June $31/$32 bear put spread.

At last check, this spread was offered at 35 cents, or $35 per pair of contracts.  Breakeven lies at $31.65, while a maximum profit of 65 cents, or $65 per pair of contracts — a potential return of 180% — is possible if TWTR stock closes at or below $31 when June options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/twitter-inc-twtr-stock-bullish-case/.

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