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

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