Twitter shares rallied more than 10 percent Tuesday on an upgrade from Morgan Stanley, citing that the platform's relationship with advertisers, improving user numbers and positive revisions make it "a more compelling risk/reward."
As the company gets ready to announce first-quarter earnings next week, one trader says the stock looks primed for an even bigger breakout.
"Twitter is set to report earnings on [April 25] and it's looking pretty solid here with a nice technical pullback here into support," Todd Gordon of TradingAnalysis.com said Tuesday on CNBC's "Trading Nation." "It looks like we're set to move higher here on earnings."
On a chart of Twitter, Gordon sees a "decision point" for the stock at around the $25 level. According to Gordon, $25 had previously been a level of resistance for the shares before they broke through earlier this year. Since then, Twitter has pulled back but bounced up again from that $25 mark, which leads Gordon to believe that the recent rally from resistance is a bullish sign for the stock.
And with implied volatility, or the price of options, so high heading into earnings, Gordon believes now is the time to sell a put spread on Twitter.
As a result, he's selling the April 27 weekly 30-strike puts and pairing that with the purchase of the April 27 weekly 25-strike puts, which nets him a credit of $1.36. In other words, should Twitter close above $30 on April 27 expiration, Gordon would make the $136 credit on the trade.
But if Twitter closed below $25 on April 27 expiration, then Gordon could lose up to $364. However, given that Twitter is already trading above $30 ahead of earnings, Gordon isn't concerned about his chances.
"Remember, as you sell a put spread below the market, with high implied volatility our probability of success is better than 50 percent," he said.
Twitter was trading around $31.60 on Tuesday, and is up more than 32 percent year to date.
