Twitter (TWTR) has certainly faced its own challenges as of late.
The ousting of its sitting CEO, trying to find a new one only to go back to the first guy, to trying to figure out exactly what its identity is. “Are we a social media company or a news outlet?” These questions still remain.
But here’s few things that are true: Twitter’s IPO price was $26.00, the stock is printing below $30. Twitter has 974 million existing accounts with 304 million monthly active users according to Statista. That’s nothing to sneeze at. Those users are valuable to a wide array of different companies. After Twitter’s IPO, the stock shot up to a high of around $53.25 in April of this year. It was a constant source of takeover/partnership rumors. If that was true at $53.00 what are the odds at about half that price?
If the reward to risk is good enough, I am willing to find out. I will want to give myself a bit more time than usual so I will just January of 2016 options. Is it a stretch to say that TWTR has the ability to at least test the 200-day moving average at ~$37.50? If the January 32/37 call spread can be purchased for $1.00 we afford ourselves a reward to risk of 4:1.
We can make $4 (width of the spread less the debit to get in) and we can lose no more than what we originally invest ($1). 4/1 = 4:1. The stock will have to trade down about $1.00 – $1.50 from here to get in, but patience is key here. If it does not come down to our level, move on. If it does, we have a potentially nice present to ring in 2016.
