Get Bullish on Twitter with Call Options
It seems like difficult times for Twitter (NYSE:TWTR) as we’ve seen a strong sell-off since the IPO (Initial Public Offering) where prices surged above the $70/share. It is now struggling to keep even at the $30/share area, and is moving into the $27/share area as a number of factors are weighing in.
Firstly, the overall equity markets are not looking good at all. Jitters from the Chinese market are having a domino effect on equity markets all around the globe, and this is weighing on all stocks, regardless of their own internal situation.
Speaking about internal situations, actually Twitter is not doing that bad. It is a bit overvalued as it is trading multiples when it comes to its valuation, but this is the situation with many other companies in these days after all.
The new advertising platform is the key for growing their income stream. This is one of the reasons why a lot of economists and rating agencies consider the current area a good buying opportunity for Twitter, and the company’s shares have been upgraded.
Secondly, and way more important this time is the monetary policy in the United States. This plays a key role all over the world, as it affects both the way the equities are going to trade and the value of the US dollar.
This is important as the US dollar value is crucial for US companies that are earning their incomes from overseas, and Twitter is no different. Moreover, recent expansion plans into markets such as China and Australia show this trend is only starting, so the value of the US dollar will weigh heavily on Twitter’s financial statements from now on.
From a technical point of view, things are even more interesting for Twitter as the market is forming a contracting triangle that broke lower on the two year chart. This means the b-d trend line is already broken, but the shape of the triangle shows that it is part of a complex correction. In such a situation, the b-d trend line is retested almost always, and this brings the $40 range into focus.
As a consequence, I am favoring a call option from current $27 range for Twitter‘s share price. An end of month expiration would work well as the market needs to retest that triangle in a move that should be corrective, namely a zigzag or a zigzag family pattern.
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