Strategic trade
Trade view / 09 August 2016 at 8:08 GMT

UPDATE: Lottery ticket trade in Twitter

Trader /
United States

On July 14 I offered a trade idea to buy shares of Twitter or options thereof for a lottery ticket trade in case the company gets acquired, which I still think stands a good chance through a six-month lens. In the meantime, the stock has continued to act promisingly and an update on this trade idea is warranted.

Twitter has had its fair share of internal struggles in recent years, which coupled with slowing growth in its key metrics such as user engagement has forced investors to trade down its stock. While the internal company struggles are likely far from over, Twitter remains an attractive asset given the user base and technology platform, which I thus believe to be an attractive acquisition target.

On the multi-year chart the picture remains the same, which is to say that TWTR stock remains trading well below its mid 2014 lows and the horizontal (previous) support area but the stock has also shown some technical basing in recent months.   

Twitter Inc
Source: eSignal

On the daily chart note that since my last update on this trade Twitter has reported earnings that failed to inspire investors, which led to a post-earnings selloff. It only took a few days after earnings however for renewed buyout rumours of Twitter to surface, which has since pushed the stock right back near where it traded before the earnings announcement. 

In other words, investors are seemingly look past the weak growth  metrics of Twitter and toward a potential buyout bid of the company.  

Twitter Inc
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Source: eSignal

Management and risk description

To reiterate, this trade idea is much more a lottery ticket for a potential acquisition of Twitter within the next six or seven months than anything based particularly on charts.


Entry: buy the January 18 strike call options for around $2.40 - $2.60.

Stop: if no acquisition is near or rumored by early- to mid-December.

Target: if/when the company gets acquired.

Time horizon: six months.

— Edited by Michael McKenna

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Non-independent investment research disclaimer applies. Read more


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