Twitter's IPO release was a success in the market and now trading of Twitter options has also started in the U.S. market.
Many investors usually use options to hedge existing stock positions or speculate on future movements in a company's stock. Call options allows buyers the right to purchase a stock at a certain price by a specific expiration date. On the other hand, puts gives the right to sell off shares by a certain date at a specific price only.
Reports suggest that a total of 82,000 puts and 41,000 calls traded on Friday, November 15, which makes the put-to-call ratio of 2:02:1. However, option volume was lower than what was expected by analysts.
Twitter's turnover was not at par with Facebook's options on first day trading, which was over 365,000 contracts; however, Twitter's options market has been consistent from a volume, price and implied volatility perspective.
Some analysts suggest that one of the key factors that may have driven Twitter's low option volume is that its first day of trading fell on the monthly expiration of November options.
"Typically during expiration, options traders are focused on expiring open positions in puts and calls in single stocks and mitigating their risk there," said J.J. Kinahan, chief strategist TD Ameritrade. "So starting next week, Twitter options may get more attention with expiration out of the way."
Kinahan also added that many non-professionals may have been reluctant to trade Twitter's option as volatility levels and pricing can be unstable on the first day trading, which was not true with Twitter options.
Reports suggest that the most active Twitter option was the December $30 put, with a volume of 30,746 contracts.
"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 company's shares fell by 1.6 percent to close at $43.98 on Friday. On November 7, Twitter released its IPO at $26 a share and just the next day the share price jumped to $45.10 a share.
