Twitter LIKE Facebook
The August market low seems long ago…Tech has surged 25% form that bottom to produce a double digit gain in 2015 with two months to go.
Epic jumps in behemoths Google, Amazon, and Microsoft has propelled the Nasdaq 100 to new ALL TIME FOREVER heights
The breakout rally in the NDX index 4400 to 4600 range targets a measured move in the market leading index to 4800.
Facebook has long ago shaken off the blahs that often occur after the “What Now” reality of IPO excitement. Remember the opportunity when FB fell to under $20 in 2012 and everyone but believers were bitter.
Unique trans-formative technologies have to unlock the monetization riddle, once FB cracked the code in mobile it was money…
A very similar story arch is developing in Twitter.
Twitter loss minus 25% in the last year of trade is double the 12% gain in Tech.
After New LIFETIME TWITTER lows the stock has rebounded back above the psychological $26 IPO price that lucky customers in November 2013 had handed to them.
ONE WORD…VIDEO… could be a game changer to monetize tweets ala the Facebook.
A $26-$34 trading range has captured action over the last three months plus. The $30 level right here is the midpoint resistance of this sideways channel. A move above $30 targets a quick run to $34.
A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.
The January option has nearly three months for Bullish development.
An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A Twitter long call option can provide the staying power for a potential bullish bounce. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from only modest directional moves.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With TWTR trading at $29.75, for example, an In The Money $25.00 strike option currently has $4.75 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need – even if the move occurs in the next few weeks. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the TWTR January $25.00 Call at $5.75 or less. A close in the stock below $24 on a weekly basis or the loss of half of the option premium would trigger an exit.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with a much less money tied up in the investment. The option Delta is 80%.
The January option has nearly three months for bullish development.
The maximum loss is limited to the $575 or less paid per option contract. A stop loss is placed at half of the premium paid to lessen dollar exposure.
The upside, on the other hand, is unlimited.
The TWTR option trade break even is $30.75 or less at expiration ($25.00 strike plus $5.75 or less option premium). That is a dollar above the current price.
If shares move the $34 top of the recent trading range, the option would be worth $9 for more than a 50% return on investment.