Twitter, Inc. (TWTR) options listed for the first time today and opened for trading with this morning’s opening bell. TWTR stock is trading around $0.80 lower on the day at $43.90. The stock has been trading in a range of $39.40-$50.09 since its IPO. It appears that TWTR implied volatility is trading at a premium to other names in the space like FB and LNKD. This could provide us with an opportunity to sell what look like relatively expensive options in TWTR. Picking strikes to sell and which strategy to use can be tricky as there is only 7 trading days’ worth of price action and data. This means that technical indicators are not going to be much use to us. Looking at TWTR options for next week’s expiration we can see that the at the money straddle is trading around $2.90. Using this straddle price we can calculate implied closes for TWTR and use them to set up a trade. This method works best here because of the lack of technical data. With the options market implying TWTR stock to close at either $46.90 or $41.10 on next Friday’s expiration we will now set up a trade based on those targets.
Trade: Selling the TWTR Nov 22nd 41-40 Put Spread and the 47-48 Call spread for $0.35 Net Credit
Risk: $65 per 1 lot
Reward: $35 per 1 lot
Breakeven: $40.65 and $47.35
