Options Arena: Twitter Takeover

Who had “Elon Musk takes over Twitter” on their 2022 bingo card?

I owe them a beer or three.

The mega billionaire space maverick who just can’t help but get into trouble has done it again. And he’s shaking up much more than the Twitter boardroom.

The stock is up 22% this week, and was up as much as 37% at the peak of the Elon Musk hype.

Thing is, Twitter has never been a great trade. It’s lagged its social media rival Facebook (FB) on users and revenue for years. Seemingly because tweeters are too busy screaming at each other to click on ads.

Will Musk turn the company around? How do you make Twitter profitable?

And most importantly — will it finally get an edit button?

It’s time to see what our True Options Masters think…

Chad: This Put Option Could Hand You Double Digits by May

My subscribers over in Quick Hit Profits were holding calls on TWTR before news broke of Elon’s 9.1% stake in the company. Our calls were down over 50% before the news sent them to a 249% gain.

It’s not every day Elon Musk comes to the rescue, but it was more than welcome. We took our profits and ran.

It seems like everything Elon touches turns to pure gold. He may get stretched too far at some point, but it’s reasonable to expect Twitter’s share price to do well in the long term from here.

In the short term, however, the risks are to the downside.

It was a big one-day move, but Twitter is prone to volatility. When we zoom out on the chart, you can see the stock is still in a downtrend.

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This is typically a bad sign. Don’t fight the trend as they say.

The stock is leading the market, indicated by the green candlesticks on the chart. And those of you familiar with my Profit Radar know this means some weakness is likely in store.

Sure enough, TWTR dipped on Friday. I believe we are at risk of giving up the gap, from sub-$40 a share.

So over the next couple of weeks, I have the stock on my Tank It list. It needs to break out of this downward price channel before it’s a Bank It stock.

To me, the play is short-term put options to feed off the reversal we are witnessing. The May 20, 2022 $45 puts are trading for about $3.40. If the stock completes the pullback and hits $40, this option would be worth at least $5 a share, a 47% gain in one month. If it falls more, or falls faster than expected, the gains could grow from there.

Mike: Musk May Be the New Edison, but He Can’t Save Twitter

Elon Musk may change the world as much as Thomas Edison did. He’s driving revolutions in electric vehicles, solar power, space travel, and even underground tunnels to ease traffic congestions. But not even Musk can make a messaging app into a world-changing technology.

Twitter just isn’t revolutionary. There are less than 40 million active U.S. users on the platform. Some of them are important, but many are simply loud and opinionated. That means the stock is now overvalued.

The chart below shows that Twitter’s price-to-sales ratio is now greater than Apple’s, Alphabet, and Meta Platforms.

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These companies have millions more users than Twitter. In the United States, 180 million people are active on Facebook, Apple’s platforms host billions, and billions use Google every day.

Musk may change who’s allowed to be on Twitter. But that doesn’t justify the extreme valuation we see right now. I expect this rally to stall in the next few weeks. At that time, longer-term put options will be attractive.

Amber: Will Twitter Be the New Cable TV?

I don’t know if Musk will change Twitter. He wants more freedom on the platform and that could lead to more users. It could also lead to more noise and less useful content, making Twitter comparable to cable TV.

With cable, you have access to hundreds of channels — but for the most part, you seek entertainment and information from the few channels you’re comfortable with and ignore the rest. Under Musk’s dream, I think Twitter becomes like that. Its content will be appealing to increasingly narrow groups.

In the long run, this should increase revenue and profits. This would make TWTR a buy on pullbacks. But for now, Musk has just made Twitter more tradable by adding some controversy to the company.

Bring up a chart, apply the indicator of your choice and trade the next signal. My momentum indicator showed Twitter was on a buy signal two weeks ago, before Musk bought a stake in the company. But now it’s overbought, as shown on the chart below. We could see a pullback soon.

Don’t chase the signals. Be patient and you’ll get opportunities to trade profitably.

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Chris: T-Mobile’s Up 1,000% Since 2010 — Now It’s Twitter’s Turn

I’ve been on Facebook for 15 years. Six months ago, I stopped using it almost entirely.

I’m sick of it. There’s no character limit, so people feel enabled to go on long, senseless rants about inflammatory topics they have no expertise in.

I’ve been more active on Instagram for about 5 years. It used to be a pure platform where you could enjoy pictures of cute cats, delicious food, and hilarious memes without political toxicity or asinine opinions. But that’s starting to change too.

These days, I’m becoming a lot more active on Twitter (you can follow me @stockroshi).

The platform is less about “your page” and isolated, insulated friend groups. The world is your audience. Anything can get picked up by the algorithm. That makes it fun and also challenging.

It rewards you for expertise. Long, senseless, emotional ramblings don’t get much reach. More elevated and thoughtful dialogue does.

It’s also hilarious — the short format makes it conducive to memes, comedy, and less seriousness all around.

Buying Twitter today is like buying T-Mobile 10 years ago. No one thought T-Mobile could compete with Verizon. But its stock is up 1,000%. Verizon is up about 40% (not including dividends).

Today Twitter is worth $20 billion less than SNAP and is 1/20th the market cap of FB. Buy it. Hold it. It will be worth hundreds of billions someday.

To the moon.

There you have it! Four options masters, and only one is unabashedly a bull…

You decide: Which of our experts has the best play for Musk’s TWTR takeover?

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Mike MersonManaging Editor, True Options Masters

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