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Twilio Inc (TWLO) Stock Is Hurtling Toward a Lock-Up Lashing

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Cloud communications specialist Twilio Inc (NYSE: TWLO ) was one of the hottest tech stocks on Wall Street during the third quarter. The stock went public on June 23 for $15 per share, then quickly soared higher. Twilio stock hit a peak just shy of $71 in late September.

Twilio Inc (TWLO) Stock Has 375% Upside for the Bulls

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But then the bottom fell out.

TWLO shares have since come crashing back to earth. And with the IPO lockup period set to end Tuesday next week, there could be more losses in store.

A quick refresher: The post-IPO lock-up period represents a period of time, usually 90 to 180 days, in which insiders who bought a stock before it went public cannot sell the shares. Such a period is usually followed by a rush of selling by early adopters looking to cash in on the stock's run higher.

With Twilio stock at around $29.50, that's nearly double the company's IPO pricing of $15. Traders likely are shedding more than a few tears that they couldn't sell near $70 back in September. But … doubling your investment is a lot better than a loss. So with TWLO in near free fall from its September highs, many investors still may be looking to unload their positions next Tuesday.

Twilio Stock: Sentiment and Charts

If a flood of selling pressure weren't enough, prevailing sentiment on Twilio stock continues to crater alongside the shares.

According to Zacks, six of the eight analysts following TWLO rate the shares a "hold" or worse. Furthermore, the consensus price target of $38.17 represent a whopping 25% premium to yesterday's close that could stand to be trimmed a bit given the stock's underperformance.

Short sellers are also gearing up for additional losses from TWLO stock. During the most recent reporting period, the number of Twilio shares sold short jumped by 13% to more than 10 million shares, or 46% of the stock's total float. Should more short sellers jump on the bandwagon after the end of the lock-up period, shares could be headed sharply lower on the increase in selling pressure.

Options traders are also leaning bearish. For instance, the Jan 2017 put/call open interest ratio has risen to a near-term high of 0.98, with puts and calls in near parity.

Such heavy pessimism is not typical of a tech startup with a promising future, and could be a sign that options traders are looking for additional losses before Twilio stock rights itself.

Click to Enlarge Overall, January 2017 implieds are pricing in a hefty move of about 18% for TWLO shares in the next two months. This places the upper bound at $34.84, while the lower bound lies at $24.16.

A rally would put Twilio stock back above its declining 50-day moving average, while an extended selloff threatens to put TWLO below its post-IPO June lows.

2 Trades for Twilio Stock

Bear Put Spread: With TWLO already in free fall and the lock-up period ending next week, the path of least resistance remains to the downside. Those traders looking to bet on extended losses for Twilio stock should consider a Jan 2017 $25/$27 bear put spread. At last check, this spread was offered at 49 cents, or $49 per pair of contracts. Breakeven lies at $26.51, while a maximum profit of $1.51, or $151 per pair of contracts, is possible if Twilio stock closes at or below $25 when January options expire.

Put Sell: On the other hand, implieds are quite high on Twilio stock at the moment, and selling premium is quite attractive. Bargain hunting could send the shares higher once the lock-up period ends, but not high enough to overcome implieds. As such, traders may want to consider selling a deep out-of-the-money put as a way to bank on TWLO bearishness instead of betting directly against the shares.

Along those lines, a Jan $24 put sell has a good chance of finishing out of the money. At last check, this put was bid at $1.05, or $105 per contract. As long as TWLO stock trades above $24 through January expiration, traders pursuing this strategy will keep the $105 premium. However, if Twilio trades below $24 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $24 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The post Twilio Inc (TWLO) Stock Is Hurtling Toward a Lock-Up Lashing appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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