Twitter Inc (NYSE:TWTR) shares are poised for a big move after it reports quarterly results on Thursday, according to options-market data, with user growth at the social media service possibly holding the key to whether shares rise or fall, analysts said.
On Wednesday, the cost of a Twitter straddle, in which an investor buys an at-the-money put option and a similar call option, suggests a move of about 12 percent in either direction by Friday.
Continue Reading Below
Twitter shares tend to be very volatile after corporate results and have on average moved nearly 16 percent on the day after its results.
Twitter spooked investors in October when it said timeline views per user, which measures engagement, slid 7 percent in the third quarter. The shares fell more than 9 percent, despite the company having doubled revenue and beaten top line estimates.
"While revenue and profitability are important, we believe the focus remains on user growth and engagement," Wedbush Securities analysts said in a note on Monday.
Better-than-expected monthly active users growth in the fourth-quarter or a positive outlook for the current quarter could trigger a Netflix-like outcome, Jim Strugger, derivatives strategist at MKM Partners, said.
Netflix Inc <NFLX.O> jumped about 17 percent on Jan. 21, a day after the streaming video service reported better-than-expected subscriber additions in its fourth-quarter.
While trading on Wednesday showed mixed sentiment with both calls and puts active, recent trading activity points to signs of bullish sentiment building in the stock, said Fred Ruffy, options strategist at WhatsTrading.com.
The top 10 largest open interest options positions in Twitter are in calls, typically used to place bullish bets on a stock, according to Trade Alert data.
Twitter put-to-call open interest ratio is about the lowest ever, with nearly two calls open for each put option.
"The put-to-call open interest ratio near an all-time low suggests pretty bullish positioning into the quarter," Strugger said.
On Wednesday, more than 136,000 contracts traded by 3 p.m. ET (2000 GMT), making Twitter options one of the most heavily traded for the day, according to Livevol Inc data.
(Reporting by Saqib Iqbal Ahmed; Editing by Cynthia Osterman)