Earnings Trade Ideas for Twitter

• Posted by Greg Harmon
• on February 10th, 2016

Twitter, $TWTR, has been nothing short of a disaster, both the stock and the company, for the last 4 months. The stock has lost over half its value, maybe to make up for the fact that their CEO is also the CEO of another company. Falling trend resistance has been steeping to the downside and falling trend support remains in place.

From the chart below you can see the RSI is in the bearish zone and flirting with the oversold line while the MACD is flat but crossing down as the price trend falls. The Bollinger Bands® are opening lower and the SMA’s are now all trending smoothly lower. Ugly.

There is no support under 14.31, yesterday’s low. Resistance above stands at 15.70 and 17.30 followed by 18.55 and 22. The last 6 earnings reports have seen the stock move by about 14.17% on average the next day, or about $2.10 at current price levels. This creates an expected range of 12.65 to 17. Short interest is elevated at 9.5%.

The February 12 Expiry Straddles suggest a larger $2.60 move by expiry with implied Volatility at 288% above the March at 108%. Open interest is very large below on the put side with size from the 9 to 15 Strikes and then again at 19. There are no strikes open under 9. On the call side open interest is all above and is big from 15 to 20.

Trade Idea 1: Buy the February 12 Expiry 14/12.5 Put Spread for $0.55.

Trade Idea 2: Buy the February 12 Expiry 14/12.5 1×2 Put Spread for $0.10.

Trade Idea 3: Buy the February 12 Expiry 15/17/19 Call Butterfly (40 cents) and sell the February 12 Expiry 12.5 Put for free.

Trade Idea 4: Buy the February 12 Expiry 15/17 1×2 Call Spread for 20 cents.

Trade Idea 5: Buy the February 12 Expiry 15/17 Call Spread and sell the February 12 Expiry 12.5 Put for 10 cents.

#1, and #2 look for a move lower but not to exceed about 12, following options projections. #1 is profitable from anywhere below 13.45, while #2 makes money between 13.90 and 11.10. #3 uses leverage to give the upside and is profitable between 15 and 19. #4 looks for a move higher but not above 19, and is profitable on a close between 15.20 and 18.80 Friday. #5 is profitable anywhere above 15.10 at expiry with risk of being put the stock at 12.50.

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