Twitter Long Straddle Options Strategy


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Twitter Long Straddle Options Strategy

  1. 1. Twitter Long Straddle Options Strategy
  2. 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. 3. It is now eligible for options trading.
  4. 4. Twitter is where people send tweets.
  5. 5. These are text messages via the SMS website interface.
  6. 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. 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. 8. The service handles over a billion and a half search queries each day.
  9. 9. Twitter is one of the ten most visited web sites.
  10. 10. It has been one of the most successful startup companies measured by growth, revenue, capitalization and impact on popular culture.
  11. 11. . The concern of many investors and traders is how well Twitter and other social media companies can monetize their sites.
  12. 12. As option trading begins on Twitter stock, traders are still uncertain where the stock price will go.
  13. 13. Thus many are adopting a Twitter long straddle options strategy.
  14. 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. 15. Long Straddle
  16. 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. 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. 18. This stock options trading strategy has nearly unlimited potential if a stock price changes significantly.
  19. 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. 20. Because many traders believe that Twitter has not found its price range they adopt a Twitter long straddle options strategy.
  21. 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. 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. 23. First Results
  24. 24. Twitter stock fell by twenty percent when it issued its first quarterly report.
  25. 25. This was a validation of the Twitter long straddle options strategy.
  26. 26. And the issue is not resolved.
  27. 27. This is company that is still in its infancy.
  28. 28. It is immensely popular and will likely find ways to monetize its popularity.
  29. 29. When that happens, it could well follow on the heels of companies like Google or Microsoft and grow exponentially.
  30. 30. The usefulness of a long options strategy in trading options on Twitter stock is not exhausted.
  31. 31. In fact, this may become a useful strategy for the days just prior to each of the next several quarterly financial report releases.