Here's How To Play All Of These Twitter Rumors, According to Axiom's Options Desk

Twitter Inc TWTR shares have surged to their highest level since December on yet another wave of buyout chatter. The most recent rumors linked both Walt Disney Co DIS and Microsoft Corporation MSFT as possible buyers.

Twitter has seen a constant stream of these buyout rumors throughout 2016. Despite no actual bids for the company, the stock is up 48 percent in the past three months.

After such a large runup, trading a stock like Twitter can be tricky. On one hand, if a bid for Twitter is announced, the stock will likely jump much higher. On the other hand, if a bid never happens, the stock could drop back into the mid-teens.

The Axiom options desk recently described two option trading strategies to play the Twitter buyout rumors.

The first strategy is to go long Twitter stock, sell an upside call out to January and buy a downside put against it. Axiom suggests buying a January 20 put and selling a January 29 call for a $0.60 debit.

“We do not really see the shares going below $17 in the event of no immediate deal because of the persistent M&A speculation,” Axiom notes.

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The second strategy is to Buy a $17-$21 put spread for January expiration at a cost of $1. That spread would capture $4 if the stock drops below $17 for any reason prior to January.

Despite the huge runup in recent months, Twitter remains down 7.2 percent in the past year.