Trader bets $5 million on Twitter turnaround
Twitter (NYSE: TWTR) shares soared as more than 5 percent Tuesday morning after the company announced it would eliminate 8 percent of its global workforce. News of the plan leaked out on Re/code late Friday , allowing one savvy trader the opportunity to place a bullish bet on a Twitter turnaround.
On Monday, in a trade that raised a few eyebrows in the options market, one trader spent more than $5 million on a bullish bet that Twitter shares will rise 25 percent in the next 16 months.
The trader purchased 10,000 of the January 2017 33-strike calls for $5.15 each. When investors buy call contracts, they are hoping the stock will rise above the strike price by more than the cost of the trade. In this case, the trader will need Twitter stock to rise above $38.15 by the end of January 2017. Twitter hasn’t traded above that level since mid-July. Since each call option accounts for 100 shares, the nominal cost of the whole transaction is just north of $5 million.Read More Cramer: Expect Twitter to go higher after layoffsTwitter shares have been under severe pressure of late, down more than 40 percent in the last six months as uncertainty over the company’s leadership structure and growth potential weighed on investors. The decline has some wondering if the social giant will be acquired.“Getting to that breakeven or better is critical to see whether [CEO Jack] Dorsey’s ultimate goal is to merge or remain independent,” Mike Khouw told CNBC’s “ Options Action ” on Tuesday.
Disclosure: NBCUniversal is a minority owner of VOX Media, which owns Re/code.