- Twitter reports earnings on Friday, July 22nd, before the open.
- The expected move in the stock price after earnings are announced is 3.9%
- Fundamental and technical indicators are bearish on Twitter
- The company's options are undervalued
Twitter Inc (NYSE:TWTR) is a large cap in the internet content and information industry and reports earnings on Friday, July 22nd, before the open.
Fundamental And Technical Indicators
Over the last month, the stock price rose 1.4%. The average slope of the trendlines is negative. Twitter’s stock price is near the short-term resistance trendline (bearish) and is closer to the long-term resistance than long-term support (bearish). Insider trading has seen more and larger sales than buys. Insider trading on Twitter has a positive one-month post-trade success rate indicating that insider trades are well-timed (bearish).
Source: ORATS
The earnings per share estimate at the July 20th announcement is $0.15. The average for the three past July quarterly earnings has been $0.13, and the average of the last 12 quarterly earnings has been $0.19. Actual earnings have beaten estimates in seven of the past 12 quarterly earnings. In the chart below, green dots represent the actual earnings amount beating estimates, and red dots show actual below estimates.
For TWTR, the current PE ratio is 44.3, which is 30.9% over the average for the last 12 earnings observations (bearish).
There has been one EPS upgrade in the past 30 days and zero downgrades. Twitter averages 3.6 upgrades and zero downgrades in the 30 days before each earning (bearish). In the 30 days before TWTR’s previous earnings release, there were four upgrades and zero downgrades.
Source: ORATS
Options Expectations
Over the last month, implied volatility fell 27.2%. Short-term IV and slope are undervalued, while the long-term is slightly overvalued.
The options market expects a move of 3.9% in either direction. The expected earnings move is calculated as the straddle price less the estimated remaining straddle value after earnings. The straddle is the price of a call plus a put at the same strike price close to the stock price at the shortest expiration. Calculating the estimated remaining straddle value includes simulating a distribution of likely earnings moves, the fall in implied volatility after earnings, and calculating an expected residual straddle value.
Historically over the past 12 quarterly earnings announcements, the expected move compared to the actual move was outside of the implied range four times. In those cases, long straddles were profitable. The rest of the earnings moves likely yielded profitable short straddles. In the chart below, the implied move is the shaded vertical line, and the dot is the actual move, green when up and red when down.
Source: ORATS
Summary
Many of the fundamental and technical indicators are bearish.
Holders of TWTR stock can hedge their holdings using long puts or long put spreads to protect from the bearish sentiment and take advantage of favorable implied volatility valuations.
Traders looking for an options trade should consider a long put spread since the indicators are bearish and the implied volatility is low compared to history.
Disclaimer: Owners, employees, directors, shareholders, officers, agents or representatives of ORATS may have interests or positions in securities of any company profiled herein. Specifically, such individuals or entities may buy or sell positions, and may or may not follow the information provided herein. Some or all of the positions may have been acquired prior to the publication of such information, and such positions may increase or decrease at any time. Any opinions expressed and/or information are statements of judgment as of the date of publication only.
Mike Zaccardi does not have a position in any of the securities mentioned in this article.