Short Sellers Miss Payout From Twitter Stock Tumble
13 Octubre 2016 - 9:50AM
Noticias Dow Jones
Short sellers abandoned their bets just before Twitter Inc.
started a 27% tumble, the worst five-day performance since its
trading debut in 2013.
Twitter had been a target for bearish traders this year, with
short wagers reaching a record 8.8% in May, data from IHS Markit
show. But short sellers started closing out their bets on Sept. 23,
when reports surfaced that potential buyers were circling the
social-media company.
Bearish traders cut their wagers from 7% of shares on loan on
Sept. 22 to 3.8% on Oct. 5, when the shares began the biggest
five-day slump ever on reports that bidders for the company were
dropping out.
"Short sellers were scared off by the recent takeover rumors and
they missed out on the recent selloff," said Simon Colvin of IHS
Markit. Now, the stock is languishing at levels below where it was
before the takeover reports. Twitter closed Wednesday at $18.05 a
share, after reaching a high of $24.87 last week.
Twitter's shares have been whipsawed by whether the company will
find a bidder after years of struggling to keep up the pace of user
growth and boost revenue. The Wall Street Journal reported earlier
this week that Salesforce.com Inc. is reconsidering its interest,
and that Walt Disney Co. and Alphabet Inc.'s Google are also
unlikely to bid.
Volatility in the stock over the past 30 days reached the
highest it has been in the last year, Trade Alert data show. The
stock's wild trading may have scared off shorts. Sellers are having
one of their better years in 2016, causing them to be reluctant to
make bold bets. The HFRI EH Short Bias Index is up 3.2% in 2016,
after posting an annualized loss of 8.7% in the last five
years.
Options trading offers clues on sentiment surrounding the stock.
The cost of bullish options, or calls, has climbed relative to
prices for bearish contracts, or puts, according to Alex
Kosoglyadov, director of equity derivatives at BMO Capital Markets.
The market is signaling the stock could climb, he said.
Twitter isn't part of the S&P 500 Index, but if it was, it
would have the second-highest implied volatility out of all member
stocks as of Wednesday, according to Christopher Jacobson, a
derivative strategist at Susquehanna Financial Group.
"Call buyers could be positioning for the potential of renewed
M&A speculation and a rebound in the stock," said Mr. Jacobson,
adding that no one knows what the endgame is for Twitter.
Twitter releases earnings on Oct. 27 and options prices are
indicating a 16% swing by the stock after the report, Trade Alert
data show. Shares plunged in seven of the last eight quarter, with
the average move being 11%. The company has never reported a
quarterly profit since its initial public offering, according to
generally accepted accounting principles, Factset data show.
Investors still bullish on Twitter could take advantage of the
volatility by putting on a call spread—a trade that entails buying
calls with a strike price of $21 that expire Nov. 18, while selling
twice as many calls with a strike price of $25 and the same
expiration, said BMO's Mr. Kosoglyadov.
The potential profit from the trade is 10 times the premium
investors need to spend, Mr. Kosoglyadov said.
Write to Gunjan Banerji at gunjan.banjeri@wsj.com
(END) Dow Jones Newswires
October 13, 2016 10:35 ET (14:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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