Bernie Schaeffer is an industry-leading expert in options and technical trading; for those familiar with options, here are two recent options trades in the social media space from Schaeffer’s Investment Research’s The Options Advisor.
The shares of social media giant Twitter (TWTR) have enjoyed some extended upside lately, passing a couple of key levels on the way. The stock broke out above $39, which, had served as resistance since early February and is 1.5 times the initial public offering (IPO) price.
Furthermore, the equity has distanced itself from $37.50, which is home to half its all-time high and just above the call-heavy 40-strike.
Meanwhile, the sentiment surrounding Twitter amid headlines concerning its July earnings miss or government regulations alarmed investors. Yet TWTR keeps chugging higher, causing shorts to feel the pain from both price action and headlines not moving the stock directionally in their favor.
More specifically, short interest hit multi-month highs earlier this summer, but fell by 12.5% during the last two reporting periods as bears run for cover. Yet there’s room for more to unwind, considering these short interest levels are 45% above last year’s low.
Lastly, among analysts, 22 out of the 26 in coverage sport a tepid “hold” rating. This influx of bearish attention could prompt overdue bull notes and combined with a short squeeze, send the social media giant even higher.
RECOMMENDATION: Buy the Twitter December 18, 2020 37-strike call.
Social media scrapbook platform Pinterest (PINS) gapped higher by a whopping 36% after its July 31 quarterly report. Its lowest point in trading that day was the $31 mark, a 10-month high for the shares. Now, Pinterest is up more than 80% in 2020, despite meeting resistance at $38 — double its IPO price.
There also looks to be plenty of room for upgrades from the analyst corners, with 10 of the 19 covering brokerage firms sporting a tepid “hold” recommendation. Should this bearish sentiment begin to unwind, Pinterest stock may be poised for another charge up the charts.
Short sellers have been bloodied by the stock’s recent rally, and have begun to hit the exits, with short interest down 23% in the two most recent reporting periods.
Yet this still accounts for 25% of the stock’s total available float, suggesting shorts are using any brief PINS pullback to cut their losses and run. This creates ample amount of buying power that can fuel additional upside.
RECOMMENDATION: Sell the Pinterest September 18, 2020 31-strike put.
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