Active but orderly debut for Twitter options

Reuters

* 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 (Reuters) - Trading in options of TwitterInc was dominated by put volume with a mixture ofselling, hedging and speculative activity in an overall orderlydebut on the U.S. options market, a week after the social mediacompany's stock started trading.

A total of 82,000 puts and 41,000 calls changed hands inTwitter on Friday for a put-to-call ratio of 2:02:1, accordingto options analytics firm Trade Alert. Option volume was on thelow end of expectations, while the underlying shares had arelatively light day of 8 million shares traded

The options market has been "rather well-behaved" from aprice, volume and implied volatility perspective, said TimBiggam, chief market strategist at options firm TradingBlock inChicago.

Twitter's turnover did not match the frenzied pace ofFacebook Inc, which set a record with its first-dayoptions launch in May 2012, when more than 365,000 contractschanged hands, Trade Alert figures showed.

One factor that may have worked against Twitter optionvolume is that its first day of trading fell on the monthlyexpiration of November options, said J.J. Kinahan, chiefstrategist TD Ameritrade.

"Typically during expiration, options traders are focused onexpiring open positions in puts and calls in single stocks andmitigating their risk there," Kinahan said. "So starting nextweek, Twitter options may get more attention with expiration outof the way."

Furthermore, Kinahan said, many non-professionals arereluctant to trade as volatility levels and pricing can bevolatile at first, although that was not necessarily true forTwitter options.

Option order flow consisted of two-sided trading in theat-the-money Twitter options, Kinahan said. The most activeoption was the December $30 put, with volume of 30,746contracts.

There was a large seller of the December $30 strike puts atfive cents apiece. The put play could have been done for avariety of reasons, among them the desire to have the stock atthe $30 level by December expiration, Kinahan said.

In terms of risk for the shares, the 30-day impliedvolatility for Twitter options stood at about 52 percent,according to TradeKing data.

Implied volatility, a key component of an options price, isa barometer of perceived risk for future stock movement.

"Looking at options prices for Twitter today, it turns outthat the shares were surprisingly available for short sellers.So the put prices were not artificially inflated compared to thecalls," said Brian Overby, options analyst at online brokeragefirm TradeKing based in Fort Lauderdale, Florida.

The cost to borrow Twitter shares for short bets was between8 and 10 percent annualized, according to Markit. That was downfrom the 20 percent level when shorting started earlier thisweek, but still more than Facebook and LinkedIn, which carrycosts of less than 1 percent.

Investors typically use options to hedge existing stockpositions or speculate on future movement in a stock. Calloptions give buyers the right to buy a stock at a certain priceby a specific expiration date. Puts convey the right to sellshares by a certain date at a specific price.

Twitter shares fell 1.6 percent to $43.98 on Friday. Theywere priced on Nov. 6 at $26 a share. On Nov. 7, the stockopened at $45.10 a share on the New York Stock Exchange and roseto $50 a share before pulling back.

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