[Options] The Bird is the Word
As can be seen in the chart below, following a pop in the few months following the IPO, shares entered into a prolonged downtrend. And once the downtrend ended, it has since proceeded to build two bases that no doubt have led to extreme frustration to both bulls and bears alike.
But signs are beginning to point to a upside regime shift.
Here's the take from the All Star Charts team:
Prices have been consolidating for the last 18 months, building a base within a base as momentum transitions back into a bullish range. Now prices are beginning to emerge from that base and confirm the continuation of their longer-term uptrend. From a risk management perspective, I think we need to give this room to work…especially in this choppy environment.
If this constructive action (in the broader social media space) does continue over the longer-term then the best way to position ourselves is in the leader, Twitter. As long as Twitter is above 34.00, we want to be buying weakness and riding this trend back to all-time highs over the next year.
Due to the broader market's latest temper tantrum over tariffs, today seems as good an opportunity as any to buy the dip for a longer term ride.
Here's the Play:
We're entering a March Bullish 35/55 Risk Reversal for a net credit in $TWTR. I'm not so much worried about the amount of the net credit, just that I get one. We're playing for a home run, not a bunt single.
Since 34 is our line in the sand for $TWTR, that's the level we will watch for our position. If $TWTR closes below 34, we'll exit our entire position at a manageable loss and re-evaluate a better entry. We were too early.
If $TWTR catches flight and begins making a run for all-time highs (north of $70), we'll look for an opportunity to sell half of our calls and using the proceeds to close our entire short puts position. If we accomplish this, then we'll have a risk-free ride on our remaining calls all the way into March expiration -- and that's the goal. Again, we're going for a home run here and it $TWTR succeeds in challenging all-time highs, we will indeed be rounding the bases!
A visualization of our risk/reward profile in this position:
Premium subscribers to All Star Options can email me here with questions on this trade at any time during the life of the position.
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