There’s a lot of fake news out there. But Twitter Inc (NYSE:TWTR) stock going higher is not it. But if you’re going to invest in TWTR stock, a modified bullish butterfly spread is a solid risk-adjusted way to ride shares higher with less need to worry about potential overnight blow-ups.
Let me explain.
It’s been a quiet couple of weeks on Twitter and TWTR stock for that matter. But both are due for a jolting wake-up call. The former of course is seemingly the exclusive domain and platform of POTUS when he has something very, very important to reflect upon. Yes, I’m being kind.
But it’s been mostly All Quiet on the Western Front for the Twitter platform and President Trump’s news feed to his gazillion followers. That’s not to say he hasn’t been tweeting. In fact, he has.
Whether it’s jobs from Foxconn, less employment from Harley-Davidson (NYSE:HOG) or plugs of the US economy being really, really terrific, POTUS’ news-feed doesn’t need to remove any cobwebs. But the news coming out of Twitter slower than we’d all like… much like the Mueller investigation these days.
The good news, well maybe, is that’s bound to change. Whether you or I like it or not, with or without a mouse click of the heart on the Twitter platform; it’s the nature of this very unique Presidency to keep everyone from all sides of the aisle tuned-in.
TWTR Stock Weekly Price Chart
Similar to the fatigue of POTUS’ Twitter platform, TWTR stock has been lethargic or nearly asleep the past couple weeks. The good news is that’s bound to change soon as well.
The better news for bullish Twitter investors is with shares trending nicely in 2018 off a massive corrective move nearly four years in duration; the relative quiet sets up as a technically sound, counter-trend pullback to position.
Of course, there are no guarantees TWTR stock will go higher. Much like there’s no assurances Mexico will pay for the wall, there are a couple Fibonacci walls of resistance on the price chart that bullish investors are facing. But as I like to say on occasion, there’s always a line somewhere; both on and off the chart.
Twitter Stock Moderately Bullish Long Butterfly Strategy
Given a bullish bias, but recognizing “s#!t” happens and not wanting to go down with the ship if it does; a modified and bullish long call butterfly position looks interesting. One favored currently is the August $48 / $55 / $60 call combination for $1.00.
With shares at $43.67 this spread needs TWTR stock to begin moving higher in order to profit. On an expiration basis, this trader can realize a return on investment in-between $49 to $59 a share. The sweet spot for this reduced and limited risk spread is at $55. In the unlikely event Twitter did find itself on the sold center strike at expiration, the combination would yield a profit of $6.00 or 600%.
What else, you ask? Well, because this butterfly has been modified with a tighter embedded credit spread relative to the bull call vertical, there’s no risk of losing money if TWTR stock rallied too strongly. Above $60, this trader still keeps $1.00 or 100% on his or her investment.
That kind of upside might seem far-fetched, much like Trump being President. But there is an earnings catalyst in late July which the August contract can take advantage of. And seeing how those walls of Fibonacci resistance would be cleanly broken above $51.50, the saying ‘never say never’ comes to mind….though I obviously don’t see the sky as the limit in the near future for TWTR stock.
Disclosure: 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.
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