Twitter Inc (NYSE:TWTR) shares are seeing increasing demand for options after the sell-off that triggered a downfall in the stock, taking off $17 billion off its market value. Within the first five months of the fiscal 2014 year, the stock shaved off 85% of the value added last year, according to reports from Bloomberg. Purchasing options rewards investors if shares recover.
Put options aimed at balancing the 10% decline in Twitter Inc (NYSE:TWTR) shares cost 0.66 points more than calls betting on a similar gain. Usually calls are cheaper by 2.56 points.
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Downward trend in 2014 for Twitter
Twitter Inc (NYSE:TWTR) shares went into a reverse loop this year due to a sell-off on the biggest technology stocks and sales by the company’s insiders after the expiration of the last lockup period. The entire NASDAQ is now trying to rebound from the decline in March and April; and market watchers are upbeat about recovery in Twitter stock as well.
“There’s a feeling from most people that it overshot to the downside, and that’s likely where the bid in the options market is coming from,” Rob Sanderson, an analyst at Stamford, Connecticut-based MKM Partners LLC, told Bloomberg. The analyst has assigned a Buy rating to the stock, saying that these high-growth promising stocks are very volatile after their IPOs.
“You’ve got people buying calls waiting for the bounce and people selling puts, trying to get into the stock,” Mark Sebastian, director of trading and investments at Swan Wealth Advisors Inc., told Bloomberg.
Nomura report triggered rebound
Last year Twitter Inc (NYSE:TWTR) surged 145%, but it wiped off 49% of the value since the start of this year. On May 6, the stock dropped 18% after the lockup period ended and was speeding downwards for the ninth straight day in the middle of the month. It was only last week that the stock rebounded by 6.4%.
Shares of the micro-blogging site advanced after analysts at Nomura Securities last week said that investors are focusing excessively on user growth rate slowdown, which Twitter can reverse through product enhancement and international expansion. After the report, the stock surged 11%.
DiClemente said in an interview with Bloomberg News that there are high chances of user growth speeding up from this point on the back of better products and international growth. He added that when Twitter Inc (NYSE:TWTR) is considered from the point of view of having a user base of over a billion users, then it is hard to accept a valuation which is considerably lower than this.