Friday, August 07, 2015

Twitter Update #9 -- (Stock Purchase)

Aug 7

Analysis

Expiration Friday for the TWTR hedges. TWTR opened up this morning at 27.54, right a the short strike of the hedges. The stock has fallen around 8.50 since the earnings release, down significantly.

In hindsight, the butterfly hedges would not have been as effective as a put spread or straight put for the earnings release, however with today price right at the short strike, I have captured more value of this cycle of the butterfly spread than in previous expirations.

For the new hedge for the upcoming cycle, I am going to purchase an outright put and look at spreading it off for later. TWTR is down significantly and has been moving $2+ during the past couple of weeks. This put is ATM the will provide more downside protection just in case there is continued weakness in the stock. If the stock moves up significantly, I will sell a call against it.

If the stock runs up a bit from 27.64, I will roll the put up to capture the value in the strikes against it.

Trades

Part 1 - Closing Short Calls
+2c Aug 7' 30.5 Call @ 0.01
Net Profit: 0.20 - 0.02 = 0.18 (this is for two contracts)

Selling Butterfly
-2c Aug 7' 29.5 Put
+4c Aug 7' 27.5 Put
+2c Aug 7' 25.5 Put (no bid - leave on as a lottery ticket)
Net Profit: 1.47/c - 0.55/c = 0.92/c

Total net profit from the hedges: 1.84 + 0.18 = 2.02

Purchase stock from the value of the hedge: 7shrs TWTR @ 27.64

The position is now net long 216 shares of TWTR, 16 of which have been purchased by the hedges.

Part 2 - New Hedge

+2c Aug 14' 27.5 Put @ 0.70 
-2c Aug 14' 29.5 Call @ 0.25 (working order - not filled)

-End

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