Jekyll and Hyde

Which market is the market to believe in? Which tech sector is the tech sector to believe in? Take it further. How about the cloud? How about Twilio (TWLO) - Get Report ? The stock easily outperformed the marketplace on Wednesday's triumphant run, gaining 13% itself. Thursday morning... This name is underperforming today. Crazy? Maybe. Opportunity? Knocking. First, just what the heck is Twilio?


For those who may have wanted to know, but were afraid to ask... this firm enables developers to operate real-time communications within software applications. The firm is broken down into three business lines. The first of which is the Programmable Cloud. This offers a better way for customers to develop organically. Then there's the Super Network. This connects a client's own software to communicate to all of that client's specified devices globally. Lastly, we come to a business model that the firm provides for innovators. In other words, this is a high-tech business communications firm that operates through the cloud.

On the Stock

First off, though severely beaten throughout the month of December along with everything else, Twilio remains up more than 200% on the year, and beat this... on trend. On Monday, the stock was named by Richard Davis at Canaccord Genuity as one of four cloud stocks as one of his favorite names for 2019. The analyst has a $90 price target on TWLO. Then on Wednesday, Evercore ISI analyst Kirk Materne gave a vague blanket vote of confidence to cloud names in general as a group that could hold up in a slower growing economy. The analyst mentioned heavyweights such as Salesforce (CRM) - Get Report , and ServiceNow (NOW) - Get Report , but the comments extended good will toward the entire group, and that was well received after the news on Monday.

Twilio will report the firm's Q4 results on February 11th. Expectations are for EPS of +0.04 vs. -0.03 same quarter last year. Consensus view is for revenue of $184 million. That would come to year over year growth of 60% if realized. Positives are that cash positions dwarf total debt, and that balance sheet related ratios look solid. The negative is that forward looking valuations are astronomical. At least though, there is positive levered cash flow.

TWLO Chart

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One sees that the last sale will struggle on Thursday just to hang on to the lower trend line of the Pitchfork. The more important level to watch will be the 38.2% Fibonacci retracement level at 71. That spot cracks and so will trend. The daily MACD seems possibly poised to turn to the upside. Money Flow remains fine.

Trade Idea (minimal lots)

What a trader could do, and only if that trader were comfortable with both volatility and risk, is to sell a February 80/85 strangle. Just an idea. What's that? That's this....

-Sell one TWLO Feb 15th $85 call (last $8.95)

-Sell one TWLO Feb 15th $80 put (last $9.22)

What this does is provide a net credit of $18.17, or $1817. The trader would be committed to buy 100 shares below $80, or sell 100 shares above $85 should the shares reach either of those levels or beyond by Feb 15th. Max profit would be realized should the equity remain between $80 and $85, obviously. The trader risks losing some dough should the shares drop below $61.83, or rise above $103.17 by that date.

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At the time of publication, Stephen Guilfoyle was Long CRM equity.