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Musk’s Buyout Sends TWTR Soaring… So Why are the Call Options Sinking?

by | Apr 25, 2022 | Options

The Nasdaq has seen a couple of buy programs push it into the green, but the rallies have been short-lived Monday as equities sell off ahead of Big Tech earnings.

We have yet to see a flight to safety — gold and silver are both down along with consumer staples, so there hasn’t been anywhere to hide outside the few names seeing positive news.

Twitter Inc. (NYSE: TWTR) got another bump Monday from Tesla Inc. (Nasdaq: TSLA) CEO and world’s wealthiest human being, Elon Musk.

The “will they, won’t they” situation took its latest turn after Musk announced he’s secured financing for the estimated $43 billion takeover bid that’s sent prices screaming higher for shares and options alike over the past couple of weeks.

Shares of the social media company spiked again more than 6.5% during Monday’s session with reports that Twitter’s board was about to accept the deal.

The takeover news made for a fantastic move for shareholders, but the skies aren’t so blue for traders holding onto Twitter call options…

Market Makers Crush Twitter Takeover Options Plays

If you’ve been gearing up for earnings season with us, then you should be well aware of the dangers of a volatility crush

This is mostly an earnings season phenomenon because that’s when we typically experience unknown event catalysts…

But by no means is earnings the only time uncertainty can hit the options market.

Just like earnings, when the uncertainty surrounding Musk and his buyout offer hit the headlines, the market makers did what they do best — cover their backsides.

As soon as Musk started lurking around the company, implied volatility shot up across the options chains.

And now that it looks like we’re going to get a conclusion to all the drama, market makers drained all of the volatility right back out — all before the company’s earnings event even had a chance to move the stock.

In fact, some of the deep in-the-money plays are in the red Monday…

TWTR May Call Options Table

Copyright Barchart

Variables like volatility crush can make or break an options trade, so check out my quick video and let’s talk about the market makers, a volatility crush and these Twitter takeover options plays.

The world’s biggest companies are set to report this week. And with all of the factors weighing on the market this earnings season, traders need every advantage they can get…

So be sure to catch my FREE “Unusual Options Activity Workshop: Earnings Edition,” while there’s still time!

*Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.

WRITTEN BY<br>Lance Ippolito

Lance Ippolito

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