Twitter Inc (TWTR) Option Structure: What’s The Best Strategy?

Updated on

Twitter Inc (NYSE:TWTR) shares have surged 143% from the IPO price level of $26, indicating the interest of investors and their confidence in the company. On the other hand, the short interest is also at 23.7 million shares, around 30% of the float.

Twin peak option structure best for traders

Twitter Inc (NYSE:TWTR) is expected to post its first quarterly results as a public company in a month or two, but there is already a divide in the opinions of experts and analysts. A specific group of experts say that the current valuation won’t hold when the micro blogging site posts its earnings report. On the other hand, the other viewpoint is that Twitter might post strong results, which can in turn surge the stock even higher.

Analyst Richard Anthony of BGC believes that investors, who are thinking of investing in the stock, may adopt a twin peak approach in options structure with expiry of February 22, 2014.  Returns may be positive at the current structure at expiry from $43 to $62 and $68 to $86.  The option could also deliver some positive returns before its expiry, which could range from $45.50 to $78 given no changes in other variables, covering a range of reactions from a possible earnings result. Anthony believes that the structure is worth considering after looking at the uncertainty surrounding the company’s first quarterly report as a public company.

Some analysts not very optimistic about Twitter

Twitter Inc (NYSE:TWTR) will post its fourth quarter earnings and full year 2013 results on February 5 after the trading session closes. Some analysts have downgraded the stock over the past few weeks. They are not sure if the high valuation of the company is justified, and whether the company, which has not been profitable yet, could maintain such high valuation levels in the long run. Recently, Twitter acquired the San Francisco-based video-sharing app Vine that enables users to create and share six second videos on Android, Windows Phone and iOS.

According to some experts, Twitter Inc (NYSE:TWTR) is capable of capitalizing on the opportunity as traditional TV ads are inclining towards the internet and paying higher revenue. Analysts at JP Morgan note that advertisers would pay more on the bigger platforms like Facebook Inc (NASDAQ:FB) and YouTube compared to Twitter, which has significantly less users/video viewers.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!