Shares of social media company Twitter (TWTR) are down 38 percent in the past year, amid heavy volatility over the potential takeover of the company. One trader sees shares declining in the coming weeks.
That’s based on the November $34 puts. With 78 days until expiration, 4,249 contracts traded compared to a prior open interest of 213, for a 20-fold rise in volume on the trade. The buyer of the puts paid $3.70 to make the downside bet.
Shares recently went for about $39, so the stock would need to drop $5, or about 13 percent for the option to move in-the-money.
At this point, the value of shares likely comes down to a pending court date in mid-October. If the case is made that the company’s value has been enhanced by the use of bots rather than real users, shares will likely move sharply lower. If not, shares could bounce higher from here.
Action to take: In the short-term and under current market conditions, there’s likely more downside for shares in the coming weeks. Investors should avoid making a trade for now until some of the uncertainty is gone.
For traders, the put options have some heavy premium to them already, but traders could potentially see some mid-double-digit gains in the coming weeks while also benefitting from a downswing in markets. Just look to take the trade off the table before the trial.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.