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.
Overall, the options market is pricing in a post-earnings move of about 13% through the end of the week, based on the price of a weekly options strategy called a straddle. A straddle involves buying a put option and a call option at the same price and for the same period of time. That allows the investor to bet on the size of the move, rather than the direction.
Twitter is no stranger to huge swings. The average move after Twitter’s six earnings releases has been about 16%. The stock tumbled 18% on April 28, the day that Twitter’s first-quarter results leaked ahead of the closing bell and revealed the weakest quarterly growth as a public company. Shares fell another 8.9% the next day.
Twitter “consistently moves a decent amount,” said Mr. Aggarwal. “It wouldn’t shock me that the implied move is underpriced given what we’ve seen happening to other names,” he added.