Twitter Inc (NYSE: TWTR) shares have
surged to their highest level since December on yet another wave of buyout chatter. The most recent rumors linked both Walt
Disney Co (NYSE: DIS) and Microsoft
Corporation (NASDAQ: MSFT) as possible buyers.
Twitter has seen a constant stream of these buyout rumors throughout 2016. Despite no actual bids for the company, the stock is
up 48 percent in the past three months.
After such a large runup, trading a stock like Twitter can be tricky. On one hand, if a bid for Twitter is announced, the stock
will likely jump much higher. On the other hand, if a bid never happens, the stock could drop back into the mid-teens.
The Axiom options desk recently described two option trading strategies to play the Twitter buyout rumors.
The first strategy is to go long Twitter stock, sell an upside call out to January and buy a downside put against it. Axiom
suggests buying a January 20 put and selling a January 29 call for a $0.60 debit.
“We do not really see the shares going below $17 in the event of no immediate deal because of the persistent M&A
speculation,” Axiom notes.
Related Link: Will
Facebook's Video Metric Miscalculation Hurt Its Bottom Line?
The second strategy is to Buy a $17-$21 put spread for January expiration at a cost of $1. That spread would capture $4 if the
stock drops below $17 for any reason prior to January.
Despite the huge runup in recent months, Twitter remains down 7.2 percent in the past year.
Latest Ratings for TWTR
Date |
Firm |
Action |
From |
To |
Sep 2016 |
Loop Capital |
Downgrades |
Hold |
Sell |
Sep 2016 |
Mizuho Securities |
Downgrades |
Neutral |
Underperform |
Sep 2016 |
Standpoint Research |
Downgrades |
Buy |
Reduce |
View More Analyst Ratings for
TWTR
View the Latest Analyst Ratings
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.