Twitter came public on Thursday, stoking a great deal of interest and a busting out of the gate with 73 percent rally off of its IPO price. But while investors finally have a chance to own a piece of the social network, some traders say the better way to play Twitter will be by using options, which will be listed on Friday.
Options provide the ability to make bullish or bearish bets on shares of a stock without outright owning or shorting the stock. And in the case of Twitter, some traders say that might be a great call.
"My feeling is that it will trade lower here in some form of another, but I wouldn't try to short this thing," said Brian Stutland of the Stutland Volatility Group. Because he doesn't know how high the stock could go, he said, "I always like using options to control that risk."
In fact, if shorting the stock proves difficult, then using options to express a bearish view could be more than preferable—it might be all but necessary.
"If someone want to sell Twitter shares short, they would first have to borrow them," pointed out Scott Nations of NationsShares. "With a small float, dedicated insiders, and IPO managers interested in thwarting short sellers, it's going to be difficult to borrow shares. That means that for most traders, the only way to express a bearish opinion on Twitter is to use options."
But this brings up a separate set of issues that make Mike Khouw of DASH Financial hesitant about using a bearish options strategy. He points out than when a stock is difficult to short, then the high price of borrowing it gets reflected in the bearish put options.