Twitter's Battered Stock May Be Ready To Surge

Nov. 29, 2018 2:53 PM ETTwitter, Inc. (TWTR)15 Comments

Summary

  • Twitter had some big options bets yesterday.
  • The technical chart also suggests the stock may rise.
  • The company faces a number of headwinds.
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Twitter Inc.'s (TWTR) stock may be about to surge by about 20% over the next few months based on some bullish option trades. Additionally, technical analysis suggests the stock is nearing a potential break out, which also points a 12% rise in the coming weeks.

Despite all the bullish optimism among traders and investors, the stock is facing a number headwinds and is not cheap when considering its slowing earnings growth. Perhaps traders and investors are betting that all changes early next year.

Big Call Trades

Yesterday there was a sizable purchase of the February 15 $37 strike price calls. The open interest for the calls rose by 40,200 open contracts. With the contracts trading at a price of roughly $1.60, the outlay on the trade was about $6.5 million a sizable wager. Additionally, a position on the January $36 calls was closed reducing its open interest to 6,500 open contracts from approximately 47,000 open contracts.

Twitter options(TradeAlert)

For a buyer of those the $37 calls to earn a profit the price of Twitter's stock would need to rise roughly 24% to $38.40 from its current price around $31.16. The calls are trading around $1.40 per contract around 10 AM on November 29.

Twitter options (TradeAlert)

Technical Chart

The technical chart also suggests that Twitter's stock is poised to rise in the coming weeks. The chart shows a bullish technical pattern forming called a flag. The formation is a continuation of the previous uptrend started in the middle of October. Should the stock break out to the next level of technical resistance come at $36.50.

The relative strength index also has broken a downtrend of its own and is now steadily trending higher. It suggests that the bullish momentum is moving into the stock.

Twitter technical chart

Upping Estimates

Twitter shocked investors last quarter when

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This article was written by

Designed for investors looking for stock ideas and broader market trends.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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