TWTR Analysis

Update 10/2/2015: I exited my iron condor on TWTR for a profit, two weeks prior to expiration. Shares declined by 5.8% over 21 days, or a -101% annual rate. The options produced a 143.8% yield on debit, for a +2,499% annual rate.

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Having played the short-form social media company's earnings in July, I'm considering taking another bite of Twitter Inc. (TWTR), headquartered in San Francisco, California, based on its high implied volatility.

[TWTR in Wikipedia]

TWTR

I shall use the OCT series of options, which trades for the last time 35 days hence, on Oct 16.

Ranges

Click on chart to enlarge.

TWTR at 12:30 p.m. New York time, 90 days 2-hour bars

Implied volatility stands at 60.6%, which is 2.5 times the VIX, a measure of volatility of the S&P 500 index. TWTR’s volatility stands in the 66th percentile of its annual range.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	32.39	37.50	29.00	N/A
Lower	22.15	17.04	23.83	N/A
Gain/loss	18.8%	37.5%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Iron condor, short the $32 calls and long the $34 calls,
short the $22 puts and long the $20 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money

OCT	Strike	OTM
Upper	32	84.5%
Lower	22	82.5%

The premium is $0.39, which is one fifth of the width of the position’s wings. The stock at the time of purchase was priced at $27.26.

The risk/reward ratio is 4.1:1.

The zone of profit in the proposed trade covers a $5 move either way, which is 3.8 times the average true range.

Decision for My Account

I've opened a position in TWTR as described above.

-- Tim Bovee, Portland, Oregon, Sept. 11, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.