Thursday, September 03, 2015

Twitter Update #17

Sep 3/4

Analysis

Expiration day is Friday. TWTR moved significantly (for TWTR) during the last two days. The stock at 28.25 which is above the strike of both hedges and above the short call.

I am going to move the call up and out (1 week duration) to give it some more room to run and look at re-hedging at expiration.

With volatility coming in, but still medium to high, and with a bullish bias, I want to hedge the stock as cheaply as possible. I will be looking a modified butterfly (BWB) to hedge for the next week.

Assuming the existing hedges will expire worthless, I am looking at a couple of BWBs anchored at the 28 or 28.5 strikes. [Edit - TWTR briefly dipped below 28 and I sold out just the put portion of this week's butterfly recovering almost all of the cost, all other strikes had zero value]

Trades

Part 1 - Roll out the calls
The short call is slightly ITM, but can be rolled up and out for another 1pt for no cost.

+2c Sep 4' 28 Call @ 0.65
-2c Sep 11' 29 Call @ 0.65
Net debit 0.00

Part 2 - New hedge

I am thinking the market is leaning bullish, volatility while high is dropping and TWTR has been acting bullish for the last week. I am going to hedge with a modified butterfly, a BWB to keep the cost of the butterfly low.

+2c Sep 11' 28 Put @ 0.91
-4c Sep 11' 26.5 Put @ 0.40
+2c Sep 11' 23 Put @ 0.08
Net debit 0.19/c

The position is covered down to 26.5 (1.5pts) and up 1pt to 29 for the next 7 days.

The position has a maximum profit of -787 and a maximum loss of -987 down to 26.5