Bulls Looking For a Good Tweet
The bulls are doing their typical Tuesday tap dance higher as the market is once again pushing resistance with the VIX heading south.
The big news after the close will be Twitter’s (TWTR, $42.29, up $1.56) earnings. Shares have been trading between $40-$45 for much of April but could be setting for a run at $50 – or – a drop into the $30′s.
Analysts are expecting a loss of 3 cents a share on revenue of north of $241 million. The high estimate if for a penny profit but the bigger driver of the stock might be user growth. We have expecting a good report from Twitter as we have been following call options for a few weeks but the May premiums are just too pricey for us to play.
The May 48 calls (TWTR140517C00048000, $1.40, up $0.20) are getting a nice pop today but shares will need to move 10%, maybe 15%, to get these options to a double.
Earnings trades are always tricky and with 30 suit-and-ties providing coverage on the stock, the trade feels crowded. There could be a chance to make a decent double, or even a triple-digit return with the aforementioned call options but Twitter will need to report a profit of 1-2 pennies, revenue will need to be north of $250 million, and their user base will need to have grown past 275 million users. These are our whisper numbers that would hush the bears.
If not, shares could stumble and the call options would likely expire worthless. We like Twitter on a pullback for a possible stock play for our Weekly Wrap portfolio but we don’t like the risk/ reward to take this trade for our Daily portfolio as an option trade.
As we make the turn, the Dow is higher by 94 points to 16,543 while the S&P 500 is gaining 10 points to 1,879. The Nasdaq is advancing 32 points to 4,106 and the Russell 2000 is up 8 points to 1,125.
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