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Twitter Long Straddle Options Strategy



Published in Technology , Business
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  • 1. Twitter Long Straddle Options Strategy
  • 2. For those who have been hibernation for the last several years, Twitter is a social media company that went public three months ago.
  • 3. It is now eligible for options trading.
  • 4. Twitter is where people send tweets.
  • 5. These are text messages via the SMS website interface.
  • 6. The Twitter interface provides people with a quick and easy way to communicate with many friends and contacts at once in messages of up to 140 characters.
  • 7. The company was founded in San Francisco in 2006 and in six years had half a billion registered users who posted a third of a billion tweets a day.
  • 8. The service handles over a billion and a half search queries each day.
  • 9. Twitter is one of the ten most visited web sites.
  • 10. It has been one of the most successful startup companies measured by growth, revenue, capitalization and impact on popular culture.
  • 11. . The concern of many investors and traders is how well Twitter and other social media companies can monetize their sites.
  • 12. As option trading begins on Twitter stock, traders are still uncertain where the stock price will go.
  • 13. Thus many are adopting a Twitter long straddle options strategy.
  • 14. So, we know a little about Twitter but what is a long straddle and of what use is a Twitter long straddle options strategy?
  • 15. Long Straddle
  • 16. A long straddle is buying both a call and a put on the same stock with the same strike price and the same expiration date.
  • 17. This strategy is the ultimate hedge in a volatile market in which it is unclear which direction a stock will go but in which it seems clear that it will not stay put.
  • 18. This stock options trading strategy has nearly unlimited potential if a stock price changes significantly.
  • 19. And, with a long straddle the worst a trader can do is lose the cost of premiums paid for the call and put if the stock does not change price.
  • 20. Because many traders believe that Twitter has not found its price range they adopt a Twitter long straddle options strategy.
  • 21. By using this approach a trader hedges his risk and guarantees a profit if, in fact, the stock moves significantly up or down.
  • 22. However, for a Twitter long straddle options strategy to make a profit the stock needs to move up or down at least enough to cover the cost of the premiums for the put and call contracts.
  • 23. First Results
  • 24. Twitter stock fell by twenty percent when it issued its first quarterly report.
  • 25. This was a validation of the Twitter long straddle options strategy.
  • 26. And the issue is not resolved.
  • 27. This is company that is still in its infancy.
  • 28. It is immensely popular and will likely find ways to monetize its popularity.
  • 29. When that happens, it could well follow on the heels of companies like Google or Microsoft and grow exponentially.
  • 30. The usefulness of a long options strategy in trading options on Twitter stock is not exhausted.
  • 31. In fact, this may become a useful strategy for the days just prior to each of the next several quarterly financial report releases.