Options investors just started taking stabs at Twitter Inc (NYSE:TWTR) today as the stock opened on the U.S. options market. Bulls had a field day with the company’s stock on opening day, although shares have declined since then. Now bears and short sellers are starting to have an impact on Twitter, according to Nikolaj Gammeltoft and Lu Wang of Bloomberg.
Twitter puts, calls start trading
Both puts and calls became available in both monthly and weekly maturities today. According to Bloomberg, data from Markit indicated that approximately 5% of Twitter Inc (NYSE:TWTR)’s public shares had already been loaned out as of early this morning. On average, just 2.4% of shares of companies in the S&P 500 index are usually loaned out. Borrowing a share is the first step in the shorting process. However, Markit notes that short selling isn’t the only reason Twitter shares may have been borrowed. The firm said many market movers may simply have borrowed shares without any intent of shorting the company after its IPO.
Twitter’s stock has only been listed for a little over a week, and the shares rose 72% since their price at the initial public offering, which was $26. The opening price ended up being around $45 a share, indicating that demand for the company’s stock was high before it even started trading.
By purchasing options, investors who are interested in Twitter but want to hedge their bets against a major decline or bet on future gains are able to get in on the action with a little less of a risk.
Twitter options in top demand?
Alan Salzbank of Gargoyle Asset Management predicted that there would be “a lot of demand” for options on Twitter Inc (NYSE:TWTR). CBOE Holdings said that when they started trading today, they had a strike price of between $35 and $50.
According to Bloomberg, investors speculating on the growth of Internet and social media companies have especially been interested in equity derivatives. As of Nov. 13, Facebook Inc (NASDAQ:FB) options were listed as having 4.9 million in open interest. That’s the second highest level among companies traded in the U.S. Only Bank of America Corp (NYSE:BAC) was higher than Facebook, according to Bloomberg’s data.
Twitter riding high on the social media craze
Projections indicate that Twitter Inc (NYSE:TWTR) won’t even become profitable until 2015 or later. Other social media giants, namely Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD), were already profitable when they had their IPOs. It seems clear from the craze which has enveloped Twitter that the company is riding high on the shoulders of the social media industry, which investors are excited about.
Bloomberg reports that almost $727 million has gone into the First Trust Dow Jones Internet Index Fund, which is the highest amount in any year since it was first created back in 2006. In the last two months, approximately $77 million has gone into the Global X Social Media Index ETF, which tracks other Internet related companies like Google Inc (NASDAQ:GOOG) and Zynga Inc (NASDAQ:ZNGA).
Options market benefits from optimism
Because of how optimistic investors are about Internet and social media stocks, options traders win because the costs of buying those options in technology stocks is lower. For example, Bloomberg reports that puts with an exercise price that’s 10% under the PowerShares QQQ Trust are priced 5.6 points more than calls which bet on a 10% gain.