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UPDATE 2-Twitter options trading is orderly on first day

Doris Frankel and Angela Moon
Friday, 15 Nov 2013 | 2:57 PM ET

* Twitter option trading not at frenzied pace of Facebook's debut

* Twitter put volume outpaces call volume by a factor of 1.75:1

CHICAGO/NEW YORK, Nov 15 (Reuters) - The first day of trading options in Twitter Inc appears to be orderly so far, a week after the social media company debuted in the U.S. equity market.

The options market has been "rather well-behaved" from a price, volume, and implied volatility perspective, said Tim Biggam, chief market strategist at options firm TradingBlock in Chicago.

Put volume is outpacing call volume by nearly 1.75 to 1 on the micro-messaging company, as 66,000 puts and 38,000 calls changed hands as of 2:51 p.m. EST, according to options analytics firm Trade Alert.

Investors typically use options to hedge existing stock positions or speculate on future movement in the stock. Call options give buyers the right to buy a stock at a certain price by a specific expiration date. Put options convey the right to sell shares by a certain date at a specific price.

Twitter's turnover has not matched the frenzied pace of Facebook Inc, which set a record with its first-day options launch when more than 365,000 contracts changed hands, according to Trade Alert.

Implied volatility - a key component of an options price, which measures the perceived risk of future stock movement - is around 50 percent, market participants said.

Twitter shares were down 2.3 percent to $43.68 on Friday. They debuted on the New York Stock Exchange on Nov. 7 at $26 a share and rose to $50 a share before pulling back.

In terms of risk for the shares, Twitter options are at an implied volatility of about 52 percent over the next 30 days.

That is above some other social media names, such as Facebook at an implied volatility of 40 percent and LinkedIn Corp at 37 percent, according to Livevol data, said Bill Luby, Chief Investment Officer of Luby Asset Management LLC of Tiburon, California and publisher of the "VIX and More" blog.

The Global X Social Media exchange-traded fund, which includes Facebook and LinkedIn, has added Twitter to its holdings. The fund's shares rose 2 percent to $19.94 on Friday.

Using implied volatility as a measure of risk, Twitter shares are 2.5 times riskier than Google's, another component of the fund, Luby said. "That means if an investor wants to hedge a long position in Twitter shares, it will be more than twice as expensive as Google puts," he said.

The cost to borrow Twitter shares for short bets was between 8 and 10 percent annualized, according to Markit. That's down from the 20 percent level when shorting started earlier this week, but still more than Facebook and LinkedIn, which carry costs of less than 1 percent.

Traders who wish to place bearish bets on Twitter will need to pay higher prices for put options because implied volatility levels are elevated, said Gareth Feighery, a founder of options education firm MarketTamer.com, in Philadelphia.

So far, the most heavily traded contracts on Twitter were the December $30 strike put, trading 17,233 times, followed by the December $40 strike put with volume of 3,620 contracts, Trade Alert data showed.

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