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Demand to Short Twitter

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Finally, just what the options market needs; options on another white-hot social media IPO! With technology stocks taking six of the 10 top spots for average daily single stock option volume, Twitter (TWTR) will join good company and likely help boost option volume that has held up better than underlying stock volume, but could still use a shot in the arm into year end. The concentration of flow in these names is a bit concerning for the industry, but it also reflects the current mood of the market, with dozens of new all-time highs set this year and fueling great debate about where we are likely to go from here.



Last week we looked back on Facebook (FB) and Linkedin (LNKD) post-IPO option flow to gain some insight into what to expect today, and over the next few hours we will see if our expectations are met. Shares have held up very well after the IPO, sticking near the $43 range, or nearly 65% above the initial offering.



Both FB and LNKD saw put volume lead calls and share price slide during their first week- which is not too surprising given that options allow bears to express their downside view without the difficulty of locating shares to short from their broker. Bloomberg reported this morning an estimate that 5% of the TWTR shares were shorted and I was able to find a broker posting an 11.5% rate to borrow shares to short, but once the options prices stabilize we'll be able to see how the synthetic short lines up via puts and calls (also called the reversal-conversion market) to see just how strong the demand to get short TWTR may be.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.


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