Earnings Play - Twitter (TWTR)...

If ever there was an opportunity for a stock to rip following an earnings announcement, it's Twitter.

It's not news that the ubiquitous social media site's stock has been ravished by bearish bets pretty much since its debut back in 2013. A history of management infighting and an inability to produce steady profits has set the bar very low for today's after the bell announcement. Right now, the stock is trading for about $31 a share... well off its all time high - just under $70 - and still well below its 1 year high of $53.49.

This is great news from a trading perspective. The company finally has a lone voice in charge in Jack Dorsey and anything that even closely resembles good news in today's announcement could change investor sentiment send the stock soaring.

The play is a classic call ratio backspread:

Short 1 November 6th $32 Call for $1.69
Long 3 November 6th $35 Calls for $0.71

This setup gives you positive 30 delta points, has an upside break-even price of just under $37 and only loses ($44) in the event that the stock finishes next week below $32. The max loss is ($344) if the stock finishes next week directly at $35 and the trade would make over $650 if it finishes at $40.

Here's what the payout structure looks like:

Comments

Modeling Credit Risk...

Here's a link to a presentation I gave back in August on modeling credit risk. If anyone would like a copy of the slides, go ahead and drop me a line... https://www.gotostage.com/channel/39b3bd2dd467480a8200e7468c765143/recording/37684fe4e655449f9b473ec796241567/watch Timeline of the presentation: Presentation Begins: 0:58:00 Logistic Regression: 1:02:00 Recent Trends in Probabilities of Default: 1:10:20 Machine Learning: 1:15:00 Merton Structural Model: 1:19:30 Stochastic Asset Simulation Model: 1:27:30 T-Year Merton Model:

Modeling Black-Litterman; Part 1 - Reverse Optimization

"The 'radical' of one century is the 'conservative' of the next." -Mark Twain In this series, I'm going to explore some of the advances in portfolio management, construction, and modeling since the advent of Harry Markowitz's Nobel Prize winning Modern Portfolio Theory (MPT) in 1952. MPT's mean-variance optimization approach shaped theoretical asset allocation models for decades after its introduction. However, the theory failed to become an accepted industry practice, so we'll explore why that is and what advances have developed in recent years to address the shortcomings of the original model. The Problems with Markowitz For the purpose of illustrating the benefits of diversification in a simple two-asset portfolio, Markowitz's model was a useful tool in producing optimal weights at each level of assumed risk to create efficient portfolios. However, in reality, investment portfolios are complex and composed of large numbers of holdin

Evidence the SPY is Overbought...

A quick note on the recent market rally here of late. It's plain to see the markets have been on a tear for the month of June (and going back into May for the QQQ) as the SPY closed today at its highest level in almost fourteen months. If we start to look at the historical levels, however, it appears the SPY may be overbought in the short-run and susceptible to a mean-reverting pattern. Here's the daily chart of the SPY as of today's (6/15/23) close... When looking at the distance between the closing price and the 50-day moving average (illustrated by the yellow bar), we're noticing a large gap... this can be measured by a statistic I developed which I casually refer to as "variance"... or the distance between current prices and their respective moving averages. Historically, throughout the life of the SPY (which debuted in January of '93), the variance over the 50-day moving average has peaked at a reading of 3.20... today's reading posts up at 2.49

Blue Horseshoe Loves This Finance Blog

Search This Blog