Twitter Analysis and Earnings Trade Ideas

• Posted by Greg Harmon
• on February 5th, 2015

Twitter ($TWTR) reports their quarterly earnings after the close tonight. Heading into the report it is moving higher after a rounding bottom pullback. Or if you like straight lines, breaking above an ascending triangle Thursday. The break of the triangle carries a target of 45.75, and this would put if squarely in the middle of the gap that runs from 44.40 to 47.15.

The RSI is solidly in the bull range and making a new 4 month high while the MACD is winding its way higher. Both of these momentum indicators support continuation higher. There is support lower at 40.65 and 39 followed by 36.45 and 34.85, the December low. There is resistance higher at 44.40 and 47.15 followed by 50.40 and 52.15 before the top in October at 55.99. The reaction to the last 6 earnings reports has been a move of about 15.75% on average or $6.50 based on today’s price, making for an expected range of 34.50 to 47.50.

The at-the money weekly February Straddles suggest a smaller $4.80 move by Expiry with Implied Volatility at 237% above the February at 87%. This would suggest a range of 36.20 to 45.80. Short interest is moderate at 6.45%. Open interest for tomorrow sees the largest at the 41 and 45 Call Strikes and then the 40 Strike Call with much lower open interest on the put side but at 40.50 and below.

Twitter, $TWTR

Trade Idea 1: Buy the February 6 Expiry 41 Calls for $2.52.

Trade Idea 2: Buy the February 6 Expiry 42/45 1×2 Call Spread for 5 cents.

Trade Idea 3: Buy the February 6 Expiry 42/45 Call Spread and sell the February 6 Expiry 36 Puts for for 50 cents.

Trade Idea 4: Buy the February 6 Expiry 42/45/48 Call Butterfly for 50 cents.

Trade Idea 5: Buy the February 6 Expiry 42/45/48 Call Butterfly and sell the February 6 Expiry 36 Put for free.

All trades cover look for a positive reaction. #1 a straight buy with defined risk, #2 uses margin and looks for the open interest at 45 to hold it tomorrow. #3 covers the upside but with downside exposure from the short 36 Puts. Those add leverage. #4 also looks for the 45 strike open interest to hold it, while using no margin. #5 adds leverage to #4 by selling the downside Put. I prefer #3 or #5.

I took trade #5 earlier for clients at 3 cents.

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