Twitter Inc (NYSE:TWTR) has been seeking a sustainable price trend for years now. But every time the blue bird takes flight, headwinds arise that force it back to ground. Chief among them has been disappointing earnings. And that makes the response to TWTR stock’s recent report all the more interesting.
Last week, TWTR shares soared 28% in the two days following its latest earnings release. The shot in the arm is giving shareholders a reason for optimism and traders a reason for participation. Elevated volatility always brings opportunity for profits.
Twitter has now retreated four days in a row amid profit-taking. Thus far the retracement has given back about one-third of the post-earnings gains, which is entirely reasonable.
What’s more, the volume accompanying the retreat is diminishing, which suggests a lack of aggression by sellers. Throw it all together, and this looks to be a buyable dip.
If the drop persists, the next support level sits near $19. Both the price gap and the 20-day moving average coincide with that price level.
Rather than initiating a bullish trade now in hopes of TWTR reversing higher, I suggest waiting for confirmation, which typically arrives in the form of a bullish reversal candle such as a doji or hammer. With Twitter sitting near the low of the day at the time of this writing we’ve yet to see buyers returning to halt the descent.
The TWTR Stock Trade
With a $20 price tag, selling naked options offers an attractive return on investment. Plus, the implied volatility for Twitter options is still elevated, so premiums are slightly juiced. Once a reversal candle forms, sell the Dec $18 puts for around 32 cents. The price will obviously be higher if Twitter pulls back further before bottoming.
The reward is limited to the initial credit and will be captured if TWTR sits above $18 at expiration.
As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
