TWLO trade ideas
Risk management, decision timeI am long 200 shares < 5% per rules and added this higher beta name to compensates for my lack of delta. It quickly turned south and I was left holding the bag (a fool and his $$$ were lucky enough to get together in the 1st place---BH) I did reduce basis by immediately selling calls and have reduced basis by 6.30. With earnings approaching 5/2 I need some upside momentum but is still pretty far off. I am considering a 1 by 2 call ratio spread for a .14 credit if set @ 33/35 (if placed today) This would give me the most options of rolling out short strikes and is fairly neutral....letting the risk ride with a "stock repair" options strategy to help me break even or little better. My other consideration is to sell the ATM straddle, which adds risk and if placed today @ 31 for a 4.28 credit is much more aggressive. With by break even price now @ 32. Publishing this post to try to get in the habit of posting ideas and learning to use functions on charts.
TWLO at a critical junctureNYSE:TWLO appears to have put a double bottom with stable 6 mo. support base between the high 20s to low 30s. The stock reversed last week and began an uptrend run. With decisively strong RSI, at highest level not seen since August 2016 it looks like $32-$35 can be achieved by the May 2 earnings release date. Since its HOT IPO runup in 6/2016 the company built a strong cult of short sellers (A la TSLA & SNAP) which remains at a very high % of float.
Going forward, how high the stock can appreciate will depend on various factors, as follows:
1. May 2 revenue growth - The company historically has issued conservative guidance. In Q4 Analysts expected $TWLO to beat est. rev. of $74.1M by about $3 million. They ended up reporting $82M. In Q1 they guided between $82M to $84M in revenue. Based on past patterns, $89M to $92M wouldn't be unreasonable.
2. Gross Margins - Q4 Gross Margins was highest of 2016 at 58%. The company alluded to the possibility of lowering slightly Gross Margins to deter any new entrants to their domain until they conquer it. So I expect a 54% Gross Margins as a worst case scenario. Once they completely dominate the space they expect to increase Gross Margins to 60% +.
3. The Market - Depending on how the market behaves in the short term will determine how high the stock will appreciate post earnings. If the stars align we may see high $30s by mid-May.
4. Short Squeeze - Last but not least, the high short interest in TWLO was last recorded at 15,396,300 shares out of 49,536,200 float or 31% of the float and ~7 days to cover. If items 1 to 3 above play out as described, I expect a major stock squeeze that can send the stock soaring.
Good Luck!
