Call Options Or Put Options On Twitter (TWTR)?

| August 1, 2014 | 0 Comments

Micro-blogging giant Twitter (TWTR) has mostly had a rough go so far in 2014.  However, the company’s fortunes may be changing after its most recent earnings report.

TWTR shares are currently trading at $45.19, up 17% for the week.  The stock is trading 40% below the 52-week high of $74.73 and is 53% above the 52-week low of $29.51.

Is this an opportunity to buy call options on TWTR after the company beat earnings expectations?  Or should you buy put options on TWTR because the company still has a long way to go before it posts a profit?

The bulls make a convincing argument…

TWTR surprised the market by posting significantly better than expected results.  The company beat on revenues and user growth.

The micro-blogging giant generated $312 million in revenue, much higher than the $283 million projected.  Moreover, 81% of the revenue came from mobile ads, which is the key channel for ad revenue these days (given the growth of smartphone and tablet usage).

What’s more, the service had 271 million average monthly users, a 24% year over year increase.  That number was also higher than the 266 million expected by analysts.

But the bears have a compelling case as well… 

Despite the strong earnings news, Twitter is still losing lots of money.  The company posted a loss of $145 million – much bigger than the $42 million loss a year ago.

In addition, a large jump in Twitter viewership came from the World Cup.  The huge event happens only once every four years.  Can TWTR replicate the user growth without such a noteworthy event?

Until the company proves it can consistently grow users AND post a profit, there’s still plenty of risk involved with buying TWTR.

So is it time to be bullish on TWTR due to blowout earnings, or should you take a bearish position because the company is unprofitable?

If you think the bulls are right, take a look at buying the TWTR September 20th 49 calls for around $1.50.

If you think the bears are right, take a look at buying the TWTR September 20th 43 puts for around $2.00.

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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