Tuesday, July 07, 2015

TWTR - Update #3 (Stock Purchase)

JUL 7

Analysis

The markets have had a wild two days. Markets have opened lower, sold off intra-day nearly 250+pts, only to recover flat or slightly up.

The TWTR platinum hedge traded well toward the butterfly short strike only to rally back. With the price action in the market and 3 days to expiration, I am going to close the hedge portion of this trade for a small profit, purchase more stock, and re-hedge for another 3 weeks.

The markets in TWTR are quite wide, so I am going to be selling the ITM long put and buying back the short calls of the butterfly, but leaving long the OTM tail part of the butterfly. The market for this OTM put strike is 0 X 0.12, and rather than wait another few days to see if the butterfly will increase in value, I will take profit now and round up the number of shares to purchase. This put strike is essentially worthless.

Earnings is this month in TWTR so volatility is starting to rise along with the general market. With the stock being beaten down, I am going to hedge again with a butterfly and short call, but I am able to get out quite far on both sides for protection.

Trades

Closing Trades
- 1/c Jul 10' 36 Put @ 0.75
+2/c Jul 10' 34 Put @ 0.08
+1/c Jul 10' 39 Call @ 0.04
- 1/c Jul 10' 32 Put @ 0.00 (left to expire Jul 10' or as a lottery ticket)

Net profit of 0.52 (Buy to open for 0.03, Sell to close for 0.55)

Stock Purchase
I have 0.52 in profit from the hedge. This can buy just under 2 shares of stock, so I will add 0.18 round up and purchase.

+2/shrs TWTR @ 35.58

New Hedge
+1/c Jul 31' 35.5 Put @ 2.25
- 2/c Jul 31' 32.5 Put @ 0.96
+1/c Jul 31' 29.5 Put @ 0.35
- 1/c Jul 31' 40.5 Call @ 0.74
Buy to open for a net credit of 0.06

Here is the new position greeks and risk curve. The entry debit has increased slightly due to extra 0.18 added to purchase stock, less the 0.06 credit from the credit from the hedge. The position breakeven has been lowered to 35.58 down from 36.22.

The current expected move (EM) for TWTR for Jul 31' expiration 31.50 - 39.50. This includes the earnings cycle on Jul 28.