Twitter Inc (NYSE:TWTR) is going to announce its second-quarter results next week. Investors and analysts are placing their bets on how the company would be performing. Since Twitter Inc (NYSE:TWTR) doesn’t have much of an earnings history and the company is yet figuring out its sources of revenues, most people are focussing on options for playing the stock, this earnings season. Trading Advantage’s Senior Market Strategist, Scott Bauer discussed his ‘neutral play’ option strategy on Twitter Inc (NYSE:TWTR) on Bloomberg’s ‘Market Makers,’ expecting the stock to react within a $4 up and down range during the course of the result announcement.
“You know, it’s actually a pretty neutral strategy, there is not a lot of earnings history. The option market is pricing it at about a $4, $4.25 move on earnings next week. What I want to do is sell an Iron Butterfly, it sounds complicated, it’s really not. For those options traders out there, it’s a golden nuggets trade that’s really not […],” Mr. Bauer said about his option strategy.
The Iron Butterfly strategy that Mr. Bauer was talking about involves selling Twitter Inc (NYSE:TWTR)’s August 1 weekly (expiry) 38 Call & 38 Put, while at the same time buying the August 1 weekly (expiry) 34 Put & 42 Call. The strategy has a maximum profit potential of $3. Mr. Bauer has a firm belief in the strategy and said he would be executing it all day long. According to him it’s rare that he will get this type of trade, especially when the expected move is only $4 for a stock on its earnings (results) day.
“I am stopped out; you know my maximum risk is a $1. I am stopped out to potentially make $3 on this trade so it’s a pretty neutral trade. I do think, I am pretty bearish in Twitter Inc (NYSE:TWTR) overall, but this is a neutral trade on earnings,” Mr. Bauer said when asked about the risk -reward ratio of his trade.