Protecting Twitter – Part II the follow up

• Posted by Greg Harmon
• on April 30th, 2014

Prior to earnings I wrote about how to protect the stock into the event at the request of a reader. I recommended adding a May 2 Expiry 40/34 Put Spread and selling a June 6 Expiry 46 Call, a collar, to the stock here, with a lot more detail. Now that the event has passed the stock started lower and is continuing lower in the pre-market. What to do? If after reading the earnings report you are still intent on being a long holder of the stock then it is time to deal with the collar. Watch it in the premarket and early part of trading for signs of a bounce. When you see that it is time to sell the Put Spread. The stock is trading at $37 as I write, so you should be able to get a little less than $3 for the Put Spread. The Call part of the collar you can let stand to expire or take your stock should it come into play in a few weeks. I would prefer buying it back so that you can add a 1×2 Call Spread (essentially a covered call and a Call Spread) at lower strikes. Look for a combination that ends up free or low cost. For example, a May 39/44 1×2 Call Spread, buying the 39 Call and selling 2 of the 44 Call was free at the close. You will need to look for updated strikes when the market opens. The plan is to benefit from a rise not only by owning the stock but also a Call Spread, both capped at the upper strike in May. If it expires then it cost you nothing, and yo look to do it again in the following month. If it gets capped then you make the run up in the stock plus the call spread.

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