Twitter – Option Trade

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Twitter – Option Trade

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Twitter (TWTR) looks interesting here…

Twitter has a steep hill to climb…

Twitter remains a strong sell.

The Brief:

-The company’s business model is in serious jeopardy.

-Governments worldwide are starting to regulate the social media industry and users are starting to become conscious of the data that they are sharing with these services. These two reasons are the fundamental thesis to the sell rating.

Recent News Headlines:

Twitter suspends accounts that sell automated follow/unfollow serviceshttps://mashable.com/article/twitter-follow-unfollow-spam-api-access/#Sdq0VK60HsqO

Twitter bug makes it look like random retweets are appearing in your timelinehttps://techcrunch.com/2019/02/01/twitter-bug-makes-it-look-like-random-retweets-are-appearing-in-your-timeline/

Earnings: February 7

Expectations: Wall Street expects a year-over-year increase in earnings on higher revenues when Twitter reports results for the quarter ended December 2018. Currently, trading at 17.68X the company’s trailing-12-month earnings per share, which represents a premium compared to the sector’s 9.66X and comes in below its industry’s 25.67X.

Target: $20

Fundamentals/Thesis:

Social Media companies are going to be severely challenged in the future. They have two major problems. First, it is becoming evident that social media companies cannot self-regulate.  Whether it be taking your private photos and sharing them with other companies or using algorithms meant to promote political agendas. There is a new story literally every day about how either Twitter or Facebook mislead users.

Second, consumers are becoming more and more conscious about how social media companies are collecting and using your data. Consumer’s I believe will soon take control over their data which will limit future advertising revenues.

Technically:

Looking at the chart of Twitter you can see that the stock hit an all-time high of $74.73 in October, 2013. After the IPO, Twitter’s shares took a large draw-down over a 2.5 years period. The stock lost 81.63%  in a period of 882 days. Twitter’s stock finally found a bottom at $13.73 in May, 2016. Now, Twitter appears to have completed a Primary Wave sequence (1-5) and is currently in the midst of a correction sequence (ABC). The Primary Wave sequence produced a gain of 248.2% in a period of 760 days. The Primary Wave Sequence’s high was $47.79 in June, 2018.

The first wave in the correction (Wave A) bottomed in 5 sub-waves. This implies that the correction will be a Zigzag . In order to get an estimate for the terminal price of the correction sequence we need to use a Trend-Based Fibonacci Extension (0-A-B). The extension provides key technical levels for possible terminal locations of Wave C.  ZigZag’s typically terminate between Fibonacci levels 1 and 1.618. The price target for Terminal Wave C is between $21-$16.

Monthly Chart

Waves

Correction Sequence

Option Trade: 15 MAR 19 – 30 PUT

Cost: $1.06

Trade Goal: Double

Trade Structure:

1. Sell 3/4 Position @ $2.12

2. Hold 1/4 for profits > $2.12

Trade Time-frame: 1 Week

Will update.

-The Humble Watcher

By |2019-02-07T20:20:00+00:00February 4th, 2019|Categories: Option Trade, Stock|Tags: , , |0 Comments

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