* Twitter option volume totaled 123,000 contracts
* Put volume outpaces call volume by a factor of two-to-one
By Doris Frankel
CHICAGO, Nov 15 Trading in options of Twitter
Inc was dominated by put volume with a mixture of
selling, hedging and speculative activity in an overall orderly
debut on the U.S. options market, a week after the social media
company's stock started trading.
A total of 82,000 puts and 41,000 calls changed hands in
Twitter on Friday for a put-to-call ratio of 2:02:1, according
to options analytics firm Trade Alert. Option volume was on the
low end of expectations, while the underlying shares had a
relatively light day of 8 million shares traded
The options market has been "rather well-behaved" from a
price, volume and implied volatility perspective, said Tim
Biggam, chief market strategist at options firm TradingBlock in
Twitter's turnover did not match the frenzied pace of
Facebook Inc, which set a record with its first-day
options launch in May 2012, when more than 365,000 contracts
changed hands, Trade Alert figures showed.
One factor that may have worked against Twitter option
volume is that its first day of trading fell on the monthly
expiration of November options, said J.J. Kinahan, chief
strategist TD Ameritrade.
"Typically during expiration, options traders are focused on
expiring open positions in puts and calls in single stocks and
mitigating their risk there," Kinahan said. "So starting next
week, Twitter options may get more attention with expiration out
of the way."
Furthermore, Kinahan said, many non-professionals are
reluctant to trade as volatility levels and pricing can be
volatile at first, although that was not necessarily true for
Option order flow consisted of two-sided trading in the
at-the-money Twitter options, Kinahan said. The most active
option was the December $30 put, with volume of 30,746
There was a large seller of the December $30 strike puts at
five cents apiece. The put play could have been done for a
variety of reasons, among them the desire to have the stock at
the $30 level by December expiration, Kinahan said.
In terms of risk for the shares, the 30-day implied
volatility for Twitter options stood at about 52 percent,
according to TradeKing data.
Implied volatility, a key component of an options price, is
a barometer of perceived risk for future stock movement.
"Looking at options prices for Twitter today, it turns out
that the shares were surprisingly available for short sellers.
So the put prices were not artificially inflated compared to the
calls," said Brian Overby, options analyst at online brokerage
firm TradeKing based in Fort Lauderdale, Florida.
The cost to borrow Twitter shares for short bets was between
8 and 10 percent annualized, according to Markit. That was down
from the 20 percent level when shorting started earlier this
week, but still more than Facebook and LinkedIn, which carry
costs of less than 1 percent.
Investors typically use options to hedge existing stock
positions or speculate on future movement in a stock. Call
options give buyers the right to buy a stock at a certain price
by a specific expiration date. Puts convey the right to sell
shares by a certain date at a specific price.
Twitter shares fell 1.6 percent to $43.98 on Friday. They
were priced on Nov. 6 at $26 a share. On Nov. 7, the stock
opened at $45.10 a share on the New York Stock Exchange and rose
to $50 a share before pulling back.