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  • #Twitter (TWTR) Tanks 0 comments
    Feb 6, 2014 2:38 PM

    #Twitter (NYSE:TWTR) Tanks

    1:05pm (EST)

    We had a good feeling Twitter (TWTR, $52.48, down $13.49) would beat Wall Street's estimates but we knew the number of users would be a big factor in how shares reacted to the news.

    The company reported a profit of 2 cents a shares versus expectations for a loss of 2 pennies. Revenue was also strong, coming in at $243 million versus a forecast for $218 million. Twitter also said revenue for the current quarter would be between $230-$240 million versus calls for $215 million.

    The problem was with its Average Monthly Active Users (MAUs). Although Twitter grew 30% to 241 million users, the suit-and-ties were looking for a number north of 250 million. Mobile MAUs reached 184 million for the quarter, an increase of 37% year-over-year and now represents over 75% of Twitter's total tweeters.

    We "chicken" to take a straddle option trade on Twitter because the option premiums were so juiced. A move of less than 10% in the stock would have crushed the options but the 20% move has been a windfall for those that may have taken yesterday's straddle trade we profiled.

    The February 65 calls (TWTR140222C00065000, $0.20, down $5.30) were going for $5.80 during our midday update and are down 95%.

    The February 65 puts (TWTR140222P00065000, $13.00, up $8.00) were at $5 yesterday afternoon and have zoomed 160%.

    We mentioned there was a good chance the trade could return a solid double-digit gain and at current levels, it has. The cost of the trade would have been $10.80, or $1,080, at yesterday's prices and could be closed at current levels for $13.20, or $1,320. The return would be 22%.

    Today's rally has made tomorrow much more interesting as the bulls have pushed resistance. We said any rebound couldn't be trusted until the Dow clears 15,600; S&P 1,775; Nasdaq 4,050.

    As we make the turn, the Dow is up 158 points to 15,598 while the S&P 500 is higher by 18 points to 1,770. The Nasdaq is surging 46 points to 4,057 and the Russell 2000 is jumping 12 points to 1,105. The S&P 500 Volatility Index ($VIX, 17.82, down 2.13) is down 10% and has traded down to 17.57. The bulls will be trying to get the VIX below 17.50 ahead of the close.

    Friday's Nonfarm Payrolls report will be a dozy and could help the bulls continue with a possible rally into next week. However, if it is nasty, expect the bears to push new lows.

    We have 2 more Profit Alerts today on a couple of option trades that made us 29% and 59%, respectively. This gets our 2014 Track Record to 18-5 overall and puts us in great shape to play the market's next major move.

    It is too early to say if a bottom is in but if the indexes can finish above resistance and if the Nonfarm Payrolls report doesn't disappoint, the bulls could be back in business.

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