Is Twitter Inc (TWTR) Looking Bearish Ahead of Earnings?

Twitter, Inc. (TWTR) is currently trading around $51.00 in a 52 week range of $29.51-$55.99. The stock has been doing extremely well this year with shares rallying more than 42% year to date. Despite this strong performance shares of TWTR are looking weak ahead of the release of their most recent quarterly earnings after the bell today. TWTR shares are trading lower by over 1.1% today as investors position themselves for the report.

The weakness in TWTR makes sense as the stock typically sells of on earnings day. Over the past 5 quarters the stock has only managed to rally 2 times on earnings day and has traded lower to the nearest options expiration 3 of 5 times. On average shares of TWTR move around 16.3% on earnings day but this time around market makers are implying a move of around $5.50 b this Friday’s close, pricing in a 10.1% move into TWTR options. TWTR looks strong on a chart but with the bearish historical performance record TWTR has and the move lower on earnings day Facebook shares saw I think it is difficult to justify anything other than a short position in TWTR.

Using the implied move I can calculate a downside target of $45.50 by Friday’s close and look to set up an options trade.

Trade: Buying the TWTR Weekly 47-45 Put Spreads for $0.50
Risk: $50 per 1 lot
Reward: $150 per 1 lot
Breakeven: $46.50

This trade offers a 3-1 reward to risk set up should TWTR close below $45 on Friday’s close.