Friday, August 14, 2015

Twitter Update #11

Aug 14

Analysis

Weekly options expiration is today and TWTR is trading right at the long put strike. For a collar is this is the worst possible price. The long put is ATM and has very little intrinsic value and no extrinsic value (time value) left. The short call will expire worthless also.

The collar is a synthetic equivalent to a vertical call spread. This structure is essentially a call spread that has a value of zero.

I am going to wait until end of day to close out the existing position. At the very least I will have to buy back the short call spread to free up margin. I have an order to do so at 0.02-0.03 GTC.

With the volatility dropping and the TWTR having fallen so far, I am going to hedge with a butterfly and a short call combination to pay as little as possible for the next hedge. I am looking to hedge with a 2pt wide weekly fly in the next cycle.

I am bullish on TWTR and expect a gain in price. If price moves to the short call strike I will adjust and lock in profit with additional put butterflies and by rolling out the short call.

Trades

Part 1. Close the existing hedges

+2c Aug 14' 29.5 Call @ 0.03 (working GTC to close)
-2c Aug 14' 29 Put @ 0.11

The net cost for setting this hedge from last week is +0.26, which requires the Aug 14' 29 Put to close at 0.27 or better with intrinsic value to break even. Unless there is a substantial drop going into the close, no stock can be purchased from this hedge. The sale of the put at 0.11/c helps to reduce this initial debit to 0.15/c

Part 2. New weekly hedge

With the stock trading now at just over 29, the next hedge can be placed for a small debit. I have a 2pt hedge to the downside and a 1 pt of additional upside. As the end of the trading session is a few minutes away, I am putting this package order for 0.04 debit.

-2c Apr 21' 30 Call @ 0.42

+2c Apr 21' 29 Put @ 0.69
-4c Apr 21' 27 Put @ 0.14
+2c Apr 21' 25 Put @ 0.05

Net Debit: 0.04/c

Net position debit is 7009.96 holding long 216 shrs TWTR.

-End

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