Options Traders Skeptical That Elon Musk's Twitter Deal Will Cross the Finish Line

Michael Nagle | Bloomberg | Getty Images

Twitter is sinking deeper into levels the stock hasn't seen since Elon Musk announced his 9% ownership stake in the social media company in early April. The drop is largely fueled by speculation that the Tesla and SpaceX CEO might not be able to get this deal over the finish line.

A growing rift between Twitter CEO Parag Agrawal and Musk regarding the percentage of bot accounts on the site, and how that number impacts Twitter's valuation appears to be the main sticking point.

This rift — especially as it relates to the valuation question — seems to be a major worry for options traders, who reacted in a decidedly bearish manner during Monday's session.

"Today [Twitter] traded about 1.4 times an already elevated put volume, and the most active contracts were the May 35 [strike puts]. We saw almost 35,000 of those trade for about 54 cents," Michael Khouw, chief investment officer at Optimize Advisors, said Monday on CNBC's "Fast Money."

May expiration is this coming Friday, meaning buyers of these contracts see Twitter dropping another 8% from Monday's close by the end of this week. However, a lot of these contracts were bought by large traders pushing their bearish positions even further.

"It should be said that a lot of those options were actually big institutional traders who were rolling down the May 45-puts which they had previously bought, and rolling them down to the 35s. So this is a group of options traders who were already quite skeptical of the deal, going into this," said Khouw.

Twitter was down slightly in Tuesday's session.


Copyright CNBC
Contact Us