TWTR Analysis

Update 11/9/2015: I've exited TWTR for a loss. After the earnings announcement TWTR remained barely profitable within the structure of my bull put spread. It gradually drifted lower into unprofitabilit, facing me with a decision.

I chose to take the loss because I am bearish the market. TWTR, which expires in late December, had time value left, and I saw little chance that a retracement to the upside would repay me for allowing that time value to tick-tock away.

Shares declined by 11.3% over 13 days, or a -318% annual rate. The options position produced a -57.5% loss on debit, for a -1,053% annual rate

---

The social networking platform Twitter Inc. (TWTR), headquartered in San Francisco, California, publishes earnings on Tuesday after the closing bell.

[TWTR in Wikipedia]

TWTR

I shall use the DEC series of options, which trades for the last time 52 days hence, on Dec. 18.

Ranges

Implied volatility stands at 73%, which is 4.6 times the VIX, a measure of volatility of the S&P 500 index. TWTR’s volatility stands in the 89th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	39.37	47.72	40.41
Lower	22.67	14.32	21.63
Gain/loss	26.9%	53.8%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

I am bullish TWTR based on analyst expectations of a positive earnings surprise.

Bull put spread, short the $30 puts and long the $27 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
	30	52.1%

The premium is $1.10, which is 37% of the width of the position’s wing. The stock at the time of entry was priced at $31.22.

The risk/reward ratio is 1.7:1.

The strike is $1.22 below the market price. The biggest immediate move after each of the past four earnings announcements was $9.39, and the average was $8.56.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Oct. 27, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

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.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.