We had a good feeling Twitter (TWTR, $52.48, down $13.49) would beat Wall Street’s estimates but we knew the number of users would be a big factor in how shares reacted to the news.
The company reported a profit of 2 cents a shares versus expectations for a loss of 2 pennies. Revenue was also strong, coming in at $243 million versus a forecast for $218 million. Twitter also said revenue for the current quarter would be between $230-$240 million versus calls for $215 million.
The problem was with its Average Monthly Active Users (MAUs). Although Twitter grew 30% to 241 million users, the suit-and-ties were looking for a number north of 250 million. Mobile MAUs reached 184 million for the quarter, an increase of 37% year-over-year and now represents over 75% of Twitter’s total tweeters.
We were “chicken” to take a straddle option trade on Twitter because the option premiums were so juiced. A move of less than 10% in the stock would have crushed the options but the 20% move has been a windfall for those that may have taken yesterday’s straddle trade we profiled.
The February 65 calls (TWTR140222C00065000, $0.20, down $5.30) were going for $5.80 during our midday update and are down 95%.
The February 65 puts (TWTR140222P00065000, $13.00, up $8.00) were at $5 yesterday afternoon and have zoomed 160%.
We mentioned there was a good chance the trade could return a solid double-digit gain and at current levels, it has. The cost of the trade would have been $10.80, or $1,080, at yesterday’s prices and could be closed at current levels for $13.20, or $1,320. The return would be 22%. (continued…)