Twitter Earnings: Options Market Bets on Shares Surging

BY Dow Jones & Company, Inc.
07/28/2015

Some options traders are preparing for Twitter Inc. ( TWTR

) shares to soar after the company posts second-quarter earnings.

Several Internet stocks have leapt in the wake of earnings this reporting season. Notable post-earnings jumps have come from Google Inc., Amazon.com Inc., and Netflix Inc.

Twitter, which has yet to post a profit, reports after the bell on Tuesday. Shares have slipped 4.6% in 2015 so far and are down about 10% over the last year. Still, the backdrop of heady moves in Internet and technology stocks has likely made some investors wary of being left behind.

The most-active Twitter option on Monday was a call expiring this week that grants the right to buy shares at $41. That's 18% higher than Twitter's close of $34.70 on Monday.

"It's playing for a massive, massive move," said Salil Aggarwal, an equity derivatives strategist at Deutsche Bank. " It's a very bullish bet if someone is buying them," he added, referring to the $41 calls.

A call option grants the right to buy shares of the underlying company at a certain price, called the strike, by a specific time, or expiration. A put option confers the right to sell.

The ten most heavily traded Twitter options on Monday were calls, according to Trade Alert. And nine of those ten calls had strike prices above the price of the stock on Monday, which are typically bought to express bullish views on a stock.

"A lot of these momentum names have moved on earnings and most have moved to the upside," Mr. Aggarwal said. "So maybe that's why people are buying call options ahead of the event," he added.

down about $5