Here’s why Twitter could soar double digits on its earnings Tuesday: Trader

Twitter shares are soaring this year, and some traders expect the little blue bird to fly even higher when it reports first-quarter earnings.

Shares of the social media company rallied nearly 12 percent Tuesday after getting an upgrade from "underweight" to "overweight" by Morgan Stanley. Impressive user growth and growing ad sales expectations were among the top reasons for the firm's rating change.

According to "Options Action" trader Mike Khouw, the boost sent a surge of investors flocking to the stock. On Tuesday, Twitter saw nearly double the average call volume.

Twitter reports earnings on April 25. The options market is implying a 14 percent move in either direction on the report, which Khouw says is "well above the 10 percent average."

Khouw noted that a large amount of volume was in the May 35 call options, with traders purchasing those at an average price of $1 per contract.

"So those would be bullish bets that Twitter could rise above $35 by that dollar, or above $36 by May expiration," Khouw explained Tuesday on CNBC's "Fast Money." This suggests Twitter shares could surge more than 10 percent from their current levels.

In February, Twitter surpassed analyst expectations by beating on both earnings per share and revenue for its fourth-quarter results. At one point, the stock surged more than 20 percent off the report.

Twitter has soared this year, already up nearly 32 percent since January, and over 120 percent in the past year. Shares were trading slightly lower Wednesday afternoon, around $31.56.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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