With its Wings Clipped, Twitter Limps into Earnings

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Twitter ($TWTR) did an unusual thing Tuesday. It announced it would move up its earnings release originally scheduled for after hours on Thursday to pre-market Thursday “to avoid overlapping with other technology earnings and calls Thursday afternoon.” What? The general consensus was that this was not really good news.

But step back a minute. This company has been left for dead, continuing on with CEO that has gone from embattled to ignored. The stock is trading up and down on rumors, not any fundamental news stories. Nobody cares about their earnings or MAUs. Traders are just trying to game a take out. So what better time to look at the earnings event as nothing more than a sentiment catalyst from a technical perspective and develop a trade.

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The chart below shows the price action since the beginning of the year. The stock declined in a sharp falling channel until its February low. From there it bounced to just shy of 21. Over the next 3 months it drifted back to the February low and held there for a month consolidating from May into June. It started higher then finding resistance at 21 and pulling back.

Buy out rumors fueled a run up to 25 into early October. When all named parties confirmed a lack of interest it fell back even faster, first into the range then again to the lower end of the range. The stock price sits right at its 200 day SMA into the report. In fact it has been above it since early August, a bullish fact. The RSI has also held in the bullish range since May, as it sits at the lower end. And the MACD has leveled after a pullback. This has the feel of buyers creeping in, not utter ruin.

Options flow today shows the biggest trades as tied to stock. Some big married puts on the 17.5 weekly strike, and then a bit smaller Buy/Write with the January 25 calls. Open interest is all at 17 and below on the put side and big from 17 to 13.5. On the call side it is almost all above the current price and spread to the 22 strike. History shows a 12.3% move or $2.15 over the last 6 reports and the at-the-money straddle shows a similar move priced in.

Because of the high implied volatility a 15/20 Strangle can be sold for almost 50 cents, or just under 3%. If you have a preferred direction the 18/19.5/21 call butterfly is priced for a potential 6:1 return, and 16.5/15.5 1×2 put spread for free could put you in the stock at 14.5 if it blows past the last 4 months low at 15.50.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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