Block Trade Analysis – TWTR from 4/9/2015

Earlier this week I was asked about option volume in shares of Twitter (TWTR) so the stock is sort of on my radar screen these days. Looking over block trading data from yesterday I came across the following trades that were done in two blocks of 15,000 late Thursday –

  • Sell 30,000 TWTR Apr 17th 47 Puts at 0.05
  • Buy 30,000 TWTR Apr 17th 47 Calls at 5.10
  • Buy 30,000 TWTR May 15th 47 Puts at 1.48
  • Sell 30,000 TWTR May 15th 47 Calls at 6.55
  • Net Credit = 0.02

Since there are some TWTR rumors flying around I dug a little deeper into this trade. It turns out it is not as exciting as I had hoped, but it also is a good lesson on not taking a large option trade to mean something is ‘going on’ in a stock.

As Paul Harvey would say, “And now for the rest of the story”

This trade actually is a follow up to a trade from March 17th. With TWTR trading at 46.90 there was a buyer of 30,000 Apr 17th 47 Puts at 2.00 who also sold 30,000 Apr 17th 47 Calls at 1.90 for a net cost of 0.10. The payoff diagram for this trade, if it had been held to expiration on April 17th shows up below. TWTR PO

This is not a mistake, it is a straight line that looks like a short stock position. So back on March 17th this trader was bearish on TWTR and choose to express this outlook through creating a synthetic short position in the option market. The price chart below highlights daily prices for TWTR for the last three months. I highlighted where TWTR was trading on March 17th.

TWTR Chart

Note that since March 17th TWTR has moved up about six points since the March 17th trade. So back to the trade from yesterday. This position was just being rolled from options expiring April 17th to the May 15th contracts. It appears that this trader didn’t like TWTR at 46.90 and with the stock at 52.19 they still don’t like it.