This morning my LOOT! readers received this in their inboxes.
Twitter’s [TWTR] stock is trending both higher and more favorable to investors recently poised to test its multi-year high.
Traders can use a limited risk option trade to ride this recent momentum using a vertical call spread.
Twitter’s IPO in 2013 priced at $26 immediately started trading at double that near $50 and reached a high of $75 a month later.
This was extremely overvalued based on any stock market metrics considering it was not yet a profitable company.
The next 2 years saw its stock sink to a low of 14 as investors questioned how the social media company will turn tweets into profits. The stock has now doubled from that low as some of its recent changes have increased revenues. The platform makes most of its money thru advertising.
Twitter is fully ingrained into the social fabric being the fastest disseminator of news and events happening worldwide. The trend toward cord cutting with increasing mobile ability will allow Twitter to profit from advertisers who pay to be part of well-targeted audiences.
Video is starting to lead the way gaining traction with users who want watch and comment on live events like the recent Olympics and streaming NFL games with ad dollars will flowing away from traditional media. Twitter’s recent agreement with Bloomberg, for example, has created a live “social news network” which has paying sponsors such as Goldman Sachs and CME group.
The recent crackdown on fake accounts which is a problem for not only Twitter but all social sites like Facebook and Snapchat will initially hurt its overall user numbers but eventually make advertisers more confident of its user base.
The latest earnings report caused the stock to gap higher as the company saw its first net profit on increasing revenue.
The earnings breakaway gap as seen on the chart below from the 27-level high has held as the initial test lower stopped at a low of 29.70. The price is now trending higher again within this new range holding the 20-day moving average ready to re-test the high of 35.
This is an important level on the weekly charts as it was the lows after the IPO for over a year. That chart resistance is now being violated with this recent strength giving confidence to a continued move higher.
Traders can use options entering a vertical call spread to capture a move back to the 35 high. The strategy involves the purchase of specific strike calls and then selling the same number of higher strike calls with the same expiration. The net debit paid is the maximum risk. The profit is the difference between the 2 strikes used minus the debit paid.
This is cheaper than buying calls outright, but the tradeoff is the profit is limited to the difference between the 2 strikes to the higher strike as the short call side of the spread caps any more upside potential.
Twitter closed right at the 33 level on Friday, so traders can use a vertical spread if the stock goes to or above 35 at expiration. This trade could end in a 185% gain!
I can’t give away the exact trade details here, but… if you join LOOT! today, you can get this trade, 10 hours of trading education and access to so much more…
Watch this video and find out how I was able to transform myself from a terrible trader into a confident profitable one using one strategy…
— The Option Specialist
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