Thursday, December 26, 2013

Twitter (TWTR) - UPDATE: How the Option Market Totally Blew It, And We Knew it Two-Weeks Ago.

This is a quick update to the post I published on 12-24-2013.

TWTR is trading $73.78, up 5.5% with IV30™ exploding up 53.1%. The Symbol Summary is included below.

Provided by Livevol

The entire prior post is included below.  The point simply is: Twitter (TWTR) - How the Option Market Totally Blew It, And We Knew it Two-Weeks Ago. (click on the link to read the post).

What you'll read below is that on 12-10-2013 TWTR options were priced to 57.22% volatility. I wrote a quick note on it and simply said: Twitter (TWTR) - Does The Option Market Have This One Wrong?

This was one of the greatest mispricings of volatility by the option market on a multi-billion dollar company that I have seen in several years.  The 57.22% volatility now stands at 111.25% and the stock has moved ~30%.  

The Prior post(s) are included below.

TWTR is trading $70.66, up 9.5% with IV30™ popping 17.0%. The Symbol Summary is included below.

Provided by Livevol

I last wrote about TWTR on 12-10-2013 (so, exactly two weeks ago).  That note had a very specific point which is evident in the title. The option market was completely wrong about this name.

I have included the post below -- you can read it by clicking on the title.
Twitter (TWTR) - Does The Option Market Have This One Wrong?

My basic premise was pretty simple, here is a snippet from that prior post as well as the Symbol Summary from that time (remember, this is from two weeks ago), note the level not just of the stock, but the volatility.

Provided by Livevol

From 12-10-2013

TWTR's IV60™ and IV90™ are 60.53% and 62.06%.

The company has earnings due out likely in Jan (possibly Feb expiry).  One quick question, did you know these firms all have higher 60-day implied volatilities than TWTR (and this excludes bio-techs)?

Provided by Livevol

Just to be clear, TWTR has lower vol than YELP (huh?) and TWTR has 30% lower vol than GOGO.

Let's see where this stock ends up, and take a snapshot (below) of what the option market reflects.

Provided by Livevol

Look at those ATM straddles... We'll re-visit in a month or two but for now the Option Market reads that TWTR will be in [$47.20, $54.65] on Jan 18. That feels like a tight price range... no?

Back to today: 12-24-2013

The Options Tab from today is included below.

Provided by Livevol

Bottom line, that [$47.20, $54.65] range has completely blown up with the stock now trading above $70.  Keep in mind, the argument presented two weeks ago was NOT that TWTR was going to go up, it was simply that the risk reflected by the option market was wrong.

That $7.40 straddle is now worth $18.00... and by the way, we're still in December.

This is trade analysis, not a recommendation.

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