Twitter Inc TWTR shares have rallied 51.5% year to date and at least one larger option trader is betting the rally will continue through next year.
The Trades
On Monday morning, Benzinga Pro subscribers received an option alert related to an unusually large Twitter trade.
At 11:56 a.m., a trader bought 600 Twitter call options with a $50 strike price expiring in Jan. 2020 near the ask price at $6.75. The trade represented an $405,000 bullish bet.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of Monday’s Twitter option trade by institutional standards, it’s unlikely to be institutional hedging.
Twitter Finding Its Stride?
Even with the stock up more than 50% in 2019, the strike price of the calls purchased on Monday suggests more than 30% upside given their breakeven price is $56.75.
For years, Twitter investors have waited for the stock to fall into a long-term bullish trend, but inconsistent financial metrics would often derail the rallies. This year, however, the Twitter story has started to change. Twitter exceeded earnings expectations in both the first and second quarters, and it has now generated four consecutive quarters of profits.
Perhaps most importantly, monetizable daily active users were up 14% in the second quarter to 139 million.
Benzinga’s Take
Monday’s largest Twitter option trade is noteworthy given that it expires 16 months in the future. The trader evidently thinks Twitter’s stock will continue higher in the long term, and they are not concerned about a broad market sell-off between now and January 2021.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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