TWTR call options remain popular, despite the stock's decline
The 20 stocks listed in the table below have attracted the highest weekly options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest is microblogging concern
Twitter Inc (NYSE:TWTR).
TWTR is down 4.1% at $22.04, and earlier hit an intraday low of $21.99 -- within a point of the stock's all-time low of $21.01, touched during the late-August swoon. The stock has been marking a series of lower highs and lows since April, and has surrendered roughly 38.5% in 2015. With today's dip, TWTR's 14-day Relative Strength Index (RSI) is now in oversold territory, and it looks like option buyers are hoping for a short-term rebound.
TWTR calls are crossing at 1.2 times the average intraday pace, and have more than doubled puts thus far. Among the most active is the weekly 12/24 23-strike call, with what appears to be buyers betting on a rebound north of $23 by Thursday's early close, when the options expire.
More specifically, the calls are trading at a volume-weighted average price (VWAP) of $0.23, meaning vanilla buyers will begin to profit if TWTR climbs back atop $23.23 (strike plus VWAP) by 1 p.m. ET on Thursday. In light of today's swoon, delta on the call has dropped to 0.21 from 0.51 at Friday's close, implying just a 21% shot of expiring in the money. However, the most the buyers can lose is the initial premium paid, should TWTR remain below the strike.
Today's appetite for calls is nothing new for TWTR. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than three TWTR calls for every put. In fact, the resulting 10-day call/put volume ratio of 3.40 stands higher than 84% of all other readings during the past year, hinting at a bigger-than-usual affinity for long calls over puts.
However, it should be noted that short interest on TWTR crept 7.2% higher during the past two reporting periods, and now accounts for 11.3% of the stock's total available float. At the equity's average pace of trading, it would take about a week to buy back these bearish bets. Against this backdrop, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- is attributable to shorts looking for an options hedge.
In the newly front-month January 2016 series, the overhead 24 strike is home to peak call open interest, with more than 103,000 contracts in residence. This abundance of calls outstanding could translate into an options-related headwind for Twitter Inc (NYSE:TWTR) in the near term, exacerbating resistance from the stock's 10- and 20-day moving averages, which have ushered TWTR lower since October.