Jim Strugger's Option Strategy For Twitter

Twitter Inc TWTR is all set to report its fourth-quarter earnings on Thursday and traders are anticipating volatility in the stock on back of it. MKM Holdings Derivatives Strategist Jim Strugger was on Bloomberg Monday to share his option trade on Twitter and opine on unusually low open interest in options of J C Penney Company Inc JCP.

Twitter Trade

“Well what we are going to do here is be long longer-term, but we want to hedge the quarter,” Strugger said. “Focus would be on monthly active users. Last quarter was a 284 million, expectation of increase by 4 to 6 million. Our analysts expect closer to 8, there is risk into the quarter. We like using a February Put spread collar to manage that, but longer-term, we are really secular bulls on this name.”

He continued, “We want to capture the first-quarter of 2015, we want to go out to June and what we are going to do is buy a [$] 46 strike Call, we want to sell a [$] 31 put against that. You do that for even. The payoff of that looks like essentially being long stock and here you are doing it in a leveraged fashion.”

Open Interest Decline In J C Penney

“What’s interesting here is after January expiration options open interest was about 800,000," Strugger said. "It was three times that a year ago. So, you have got decreasing interest in the name from an option perspective arguably, but what is left in that open interest has a Put/Call ratio that is at its highest in almost 13 years. So, arguably declining interest, but what’s left is very bearish, they report later in February."