All is not well with the blue bird. Twitter (NASDAQ: TWTR ) fell another near-4% yesterday after already suffering a significant slide last week. With bearish evidence mounting, the ailing social media company could be ripe for a short trade. Let's dissect the setup and identify how to capitalize with Twitter stock options.
The weekly view chronicles the recent rise and fall from grace. In a little over a year, Twitter climbed from a humble $14 to just shy of $50. And then, the lofty expectations met a cold reality when the July earnings release disappointed the Street. Ever since then, the bears have dominated.
Not surprisingly, the post-earnings rebound attempt failed and formed a lower pivot high. Last week's support break added further insult to injury and TWTR now has little technical reason for optimism.
It's also now below the 200-day moving average for the first time in over a year. The first downside target based on the weekly time frame is near $26.50 which has acted as both support and resistance in the past.
The daily view adds further significance to this zone because it was a gap area formed by the February earnings jump that eventually filled in April.
Today's downdraft ended the three-day pause that settled on Twitter stock after last week's rug pull. I think it's telling that all TWTR could muster after such a large drop were three measly sideways trading sessions. With a big potential support zone looming a few dollars lower and sellers still very much in control, I think a bear trade is worth consideration.
Bet With Twitter Stock Bears
The high level of volatility in TWTR leaves me a bit leery of buying puts outright. To hedge our bets and reduce the overall cost, let's build a put spread. Buy the Nov $30 put while selling the Nov $25 put. The $3-wide bear put can be purchased for $1.95. The max reward is $3.05, but you might consider taking profits if we drop toward the $26.50 support zone.
As of this writing, Tyler Craig didn't hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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