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Trader bets on 40% rally in Twitter

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Options Action: Bullish Twitter bet

It's been a tough year for Twitter investors.

Shares of the social media giant have fallen 27 percent year to date as investors continue to fret over the company's growth potential. Twitter is now trading just above its November 2013 IPO price of $26 a share, but one trader believes a turnaround could be afoot as we head into the new year.

On Tuesday, when Twitter shares were up more than 1 percent, someone spent $750,000 on a bet that the stock could soar nearly 40 percent by the end of the first quarter of 2016. Specifically, that trader bought 10,000 of the March 31/36 call spreads for 75 cents each.

A call spread is a bullish strategy where someone will buy a call and then sell a higher strike call of the same expiration to offset the cost. The goal is for the stock to rise to the call you are short. This specific trader is targeting a move up to $36, nearly 40 percent higher than the current share price of about $26.25.

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"This person is likely leveraging an existing long position," Dan Nathan said Tuesday on CNBC's "Fast Money." The RiskReversal.com founder noted that the stock is trading near critical support at $26. "[This trade] seems like a long shot here."

Nathan, who has been bullish on Twitter all year despite a depreciating stock price, expects newly named CEO Jack Dorsey to make some sort of acquisition to "change the conversation about user growth and engagement."

Wall Street agrees that Twitter could be set for a rally. Of the 40 analysts polled by FactSet, the average price target is $33.81 with an "overweight" rating.

The social media company's shares were up more than 3 percent midday Wednesday.