MomentumOptionsTrading.com Midday Update for 5/8/14
Twitter (TWTR) Teetering at $30
A contractor told me he got into Twitter (TWTR, $32.62, up $1.96) during its first day of trading when shares were in the $40′s. He asked my opinion and I said shares could make a run to $60 as I expected momentum to stick with the market into 2014.
Sure enough, by December 20, 2013, Twitter kissed $60 and on Christmas Eve, shares cleared $70. I told him to close half and let the rest ride with a stop at $50 on the other half.
He told me he was “holding for the long haul” and I still suggested playing it safe. He was looking for shares to go to $90 and by the New Year he had finished up the project he was working on.
I haven’t seen him since but I hope he took the advice.
With shares at $30, I now find myself wrestling with the decision on if it is time to buy now, or wait for a drop to the mid $20′s. Perhaps the mid-teens?
Like picking a top for a stock, picking a bottom is never easy. Just like the contractor was rooting for shares to clear $90, I find myself cheerleading for a drop to the mid-$20′s.
This is where the beauty of options comes into play. I think at $30, shares of Twitter are cheap. To buy 100 shares of the stock it will cost $3,262 and a lot of investors might not want to make that commitment. Additionally, investors should at least try to buy 100 shares of a stock as it gives them the leverage of selling call options to lower the cost basis.
Trying to catch a falling knife is always dangerous but I think shares of Twitter are worth a look at these levels. Keep in mind it may take 1-2 quarters for the company “to get it right” and there could be further weakness ahead but I have an option trade that is going to allow us to control 100 shares of Twitter for $175.
As the bulls head into the second half of trading, the Dow is up 91 points to 16,610 while the S&P 500 is gaining 11 points to 1,889. The Nasdaq is advancing 41 points to 4,108 while the Russell 2000 is higher by 9 points to 1,117.
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