Call Options Or Put Options On Twitter (TWTR)?

| November 18, 2013 | 0 Comments

twitterTwitter (TWTR) has been all over the news because of its successful IPO and overall popularity.  Now the microblogging giant has options available to trade.  What will investors do?

TWTR shares are trading at $43.35 and are up 67% from the IPO price.  The stock’s up 10% from the 52-week low of $39.40 and is 13% below the 52-week high of $50.09.

Is this an opportunity to buy call options on TWTR after the company’s successful IPO?  Or should you buy put options on TWTR because the company needs to turn a profit to justify its high valuation?

The bulls make a convincing argument…

Twitter shares exploded higher on IPO day as demand well exceeded supply for the stock at the launch price of $26.  This IPO was the most anticipated of the year and had the biggest buzz of any public listing since Facebook (FB).

TWTR is not just an extremely popular social media service; the number of active users is over 200 million.  Revenues are already closing in on $600 million.  And, 70% of ad sales are from the all-important mobile ad space.

If TWTR keeps growing its revenues and users, the company could easily justify its high market valuation.

But the bears have a compelling case as well… 

TWTR shares have already sold off from their high of around $50 after only being public for a few weeks.  Investors are concerned about the company’s ability to turn a profit.

Moreover, the market is valuing TWTR at nearly 45 times sales – a crazy valuation for just about any company.

If TWTR can’t continue growing users and revenues at a rapid rate, it could be quite a while before the company turns a profit.  And, something has to give with the lofty valuation.

So is TWTR’s popularity enough for bullish investors, or is the company’s extremely high valuation a reason to take the other side?

If you think the bulls are right, take a look at buying the TWTR January $46 calls for around $2.50.

If you think the bears are right, take a look at buying the TWTR January $40 puts for around $2.50.

Yours in Profit,

Gordon Lewis

Tags: , , ,

Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.