2 Covered Call Ideas On Twitter Stock

With the recent announcement by Elon Musk that he is not going to acquire Twitter stock, and with the tech stocks overall being hit the most, during the market selloff in 2022, buying the Twitter stock at $33 might seem like a bargain deal.

Some options traders might look at the current stock price as very tempting for purchasing the stock and selling covered calls to generate income.

It might be a reasonable entry price and also it might be not. We are just not sure if we are at the bottom yet. The stock market might keep bleeding, fighting inflation, and losing some other 10-20% next month or in the next 12 months. We are not sure (Yet). When speaking about Twitter and Elon Musk, there is a chance that Musk will buy at the end and the Twitter stock price once again will trade well above $40. Just pure assumption though

Twitter stock price forecast

The 25 analysts offering 12-month price forecasts for Twitter Inc have a median target of 54.00, with a high estimate of 75.00 and a low estimate of 30.00. The median estimate represents a +65.39% increase from the last price of 32.65.

Now I decided to take a look at two covered call ideas on Twitter stock, suitable both for bullish and slightly bearish scenario (the stock keep falling another 10%)

This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.

Twitter Covered Call Example

Let’s look at two different covered call examples on the Twitter stock. The first will use a monthly expiration near the money strike price and the second will also use monthly expiration but with the strike price set in the money.

Near the money, TWTR covered call example. Buying 100 shares of TWTR would cost around $3,265.

August 12, 2022, 33 strike call option was trading around $2.8, generating $280 in premium per contract for covered call sellers. 

Selling the call option generates an income of 8.57% in about 30 days. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of 33?

If TWTR closes above 33 on the expiration date, the shares will be called away at 33, leaving the trader with a total profit of $315 ($35 gain on the shares plus the $280 option premium received). That equates to a 9.64% return.

But what to do if a trader is concerned that TWTR stock price might fall, let’s say under 30? That seems quite possible.

Instead of selling near the money 33 calls, traders could sell in the money 30 call option.

Selling the $30 call option for $4.8 generates an income of $215 or about 6.58% in 30 days. If TWTR closes above 30 on the expiration date, the shares will be called away at 30, leaving the trader with a total profit of $215 ($265 loss on the shares and the $480 option premium received).

These figures don’t include any potential dividends received during the course of the trades.

As we can see, both examples give us a nice options premium, with very decent results, but just the second gives us larger downside protection.

Which option would you choose?