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As far as maligned companies and stocks go, it's hard to find one with more vitriol than Twitter Inc ( TWTR ). But with TWTR now sporting a definitive bottom, it may be time for the ubiquitous blue bird to take flight.
Twitter CEO Jack Dorsey confirmed the deal but was quite vague in his comments about the investment.
In the months since Jack Dorsey took over the helm at Twitter, good news for TWTR has proven elusive (at least as far as investor reaction is concerned).
An earnings beat, praise for Periscope, an NFL streaming deal, the loosening of Twitter's infamous but constraining 140-character limit and even talks with Yahoo! Inc. ( YHOO ) regarding corporate matrimony all represent potential drivers for Twitter's turnaround.
Despite this, sustainable fanfare for TWTR has been MIA this year. Don't get me wrong, Twitter's monetization efforts will, at some point, bear fruit if shares of TWTR are to fly again. But if Twitter hopes to rewrite its story, then it needs to grow its monthly active users .
Still, Twitter stock does have a tremendous value proposition (i.e. the undeniable success of Twitter's brand for news from businesses, thought leaders and celebrities); now that shares are hitting an equally formidable bottom, it's time to buy TWTR.
Twitter Stock Weekly Chart
Click to Enlarge This strategist is guilty of having prematurely called for a TWTR turnaround on a couple occasions. In February, I laid out the case for 2016 being a better year for TWTR using an out-of-the money April weeklys cash-secured put.
While the trade was for all intents and purposes a scratch proposition, the additional time spent developing a double bottom strongly benefits TWTR stock .
Combined with multiple broken downtrend lines and a bullishly divergent stochastics, a modest initial price target of $17 to $17.50, which would fill Twitter's earnings gap, is expected. A position adjustment here makes sense.
TWTR Long Call Strategy
After reviewing Twitter's options board, the September $17 call priced for $1.10 is an attractive starting position.
Initiating with a long call allows for theoretical, open-ended returns, which is always nice. Further, in conjunction with plenty of time on the calendar and fairly low implied volatility, threats other than the directional variety, are minimized.
Having said that, and with starting directional risk of 40 deltas, I'd set a stop loss below the recent all-time low to minimize losses to roughly 50% during what could be a turn for the worse in TWTR stock.
Should TWTR fly higher and fill Twitter's earnings-related price gap, adjusting into a vertical, reducing position size or rolling up and out for a credit are smart strategies worth a trader's full attention before profit-taking in Twitter stock has a chance to make the trending news.
The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. Mr. Tyler currently holds positions in TWTR and its derivatives for managed accounts.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
