Twitter Inc (TWTR) Options Play Explained by Dan Nathan

Twitter Inc (NYSE:TWTR) stock was the center of attention of  the “Options Action” segment on CNBC . The program hosted by Melissa Lee sought ideas from Dan Nathan of Riskreversal.com on the winning strategies that investors could adopt when trading a social media stock like Twitter Inc (NYSE:TWTR).

Mr. Nathan provided viewers with a background to his options trade in the stock of the micro-blogging site.

“When I put the trade on, trade made sense, because sentiment was really poor when the stock was just about $30 and implied volatility was very high. It created what I believe was an asymmetric sort of trade with an upside at the slightest bit of good news,” he said.

He then went on caution investors who wanted to place long calls on the stock of Twitter Inc (NYSE:TWTR) in the current market scenario that, “I don’t think it is the case anymore.” He went on to advise investors that they “have to cover that low delta puts in the short in the downside”. He then went on to explain that, “it makes no sense to ride the last 15 few cents out. Then you can decide if you want to be long in the quarter.” Mr. Nathan predicted that, “this could be a kitchen sink quarter, where they almost want to get all the bad news out of the way, reset for the new management and then set the stage for some beat.”

To buttress his prediction, he pointed out the host of recent management changes brought in by the Twitter Inc (NYSE:TWTR) in addition to the new metrics that have been unveiled by the micro blogging site to explain their active user base and the relatively high levels of engagement that they enjoy with users in comparison to their competitors.

Laying out his plans for the Options play on Twitter Inc (NYSE:TWTR) at this stage, Mr. Nathan explained that, “I will be a buyer in the mid to low $30’s, and here is the thing, that 37 Call in September that you are long, and if you are in this trade, you have to sell at a higher price to lock in some profits here”. He then went on to estimate that the stock with respect to the September $44 call would see some technical resistance at $43.5 which was its previous best.

Disclosure: none

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