EDITOR'S NOTE: Sam Collins will return on Feb. 21.
Twitter Inc (NYSE: TWTR ) shares are reeling following yet another disappointing earnings announcement. It's sad, really. TWTR stock was up some 14% in the two weeks prior to earnings. Turns out it was false hope driving buyers into the blue bird. Their comeuppance arrived swiftly in the form of a two-day plunge which gave back all of the pre-earnings gains and then some.
Let's head to the charts to see if there's a trade to be had in all this mess.
We begin, as all analysis should, with price trend. The long-term trend, as illustrated by the 200-day moving average, is flatter than a pancake. The past year has possessed whoops and whirls aplenty. But neither camp has been able to wrest control of the big trend. And yet, if shorter-term trends are any indications, sellers possess the upper hand here. The 50-day and 20-day moving average are both descending nicely.
Twitter stock's price rebound this week was stopped dead in its tracks Thursday. With overhead resistance looming and its price trend pointing lower, now is as good a time as any to initiate bearish TWTR plays.
Remember, selling rallies in a downtrend is the name of the game for trend traders.
Profits Await in TWTR Stock's Next Dive
With the din of earnings fading in the distance, implied volatility has been brought low once more. And that means traders can snatch up options on the cheap. This bodes well for long put plays. Many bears prefer long puts to shorting stock since the risk is capped.
If you think TWTR stock continues to plumb the depths, consider buying the April $17 put for $1.40. Your risk is limited to the initial $1.40 cost and will be lost if Twitter sits above $17 at expiration. Your potential reward is limited only by the stock falling to zero. So consider the position well poised to profit if TWTR really bites the dust.
At the time of this writing, Tyler Craig held no positions on any of the aforementioned securities.
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