THE STRIKING PRICE JPMorgan: Twitter Perched to Fall By Steven M. Sears Nov. 2, 2017 11:23 a.m. ET ILLUSTRATION: BLOOMBERG NEWS Twitter’s stock has rallied more than 30% since reporting earnings in late October. JPMorgan Chase is telling clients to buy January $20 puts in anticipation Twitter (ticker: TWTR) stock is unable to consolidate the extraordinary gains and also rally above $20, a price that has served as upside resistance for many years. Since 2014, Twitter’s stock has tended to decline by an average of 11% in December. Now, as the stock dances around resistance at $20, JPMorgan’s derivatives strategists are telling clients that Twitter’s third-quarter results are encouraging, but not game changing. With the stock around $20, investors can buy the January $20 put for $1.26. If the stock is at $17 at expiration, the put is worth $3. Should the stock be above the $20 strike price at expiration, the trade fails. The trade reeks of conviction that Twitter’s third-quarter earnings report was little more than a bright spot in the midst of a corporate narrative that remains difficult. Rather than celebrating the stock’s incredible post-earnings rally, many analysts remain skeptical of Twitter’s ultimate ability to attract users and make money. Besides, Twitter’s stock was lagging the internet sector into earnings. For the year, just before earnings, Twitter was up about 5.1% compared with about 35% for the sector. The stock rallied so strongly on the actual report because earnings were better than expected. User trends, which have been moribund for seemingly ages, showed some vigor, and it seems Twitter is seeing some near-term revenue growth. “However, the pace of ad-revenue growth in 2018 remains uncertain, and the stock’s move may already be taking much of the growth into account,” said Shawn Quigg, a JPMorgan derivatives strategist, who recommended the January $20 put trade to clients. Moreover, Twitter’s short interest was about 8% prior to earnings, and investors covering positions sold in anticipation the stock would decline may have fueled the extraordinary rally. Analysts who follow Twitter remain extraordinarily negative toward the company. This indicates that their clients are being counseled to stay away from the stock, which should create a bearish climate for shares to melt lower. STEVEN SEARS is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.
Hmm. Makes sense, January puts... End of the year news will break of Trump impeachment and there goes Twitter! It's biggest drawcard will be gone....