Twilio is a leading Communications Platform-as-a-Service provider that enables businesses to embed messaging, voice, video, and authentication capabilities directly into their software applications. The company's platform allows developers to build and manage applications without the complexity of creating and maintaining underlying infrastructure. This just-published article (read here) makes a compelling case regarding both the ongoing growth potential as well as the potential sustainable competitive advantage being developed by Twilio.
Their Q1 2021 quarterly earnings and revenues exceeded analysts' expectations, yet the stock has since declined by 13.9%. The Covered Calls Advisor believes now is a good opportunity to initiate a position in Twilio. The twenty-eight analysts average rating is a 'Strong Buy' and their average target price of $472.17 is 63.4% above today's purchase price.
As detailed below for this Twilio 100% Cash-Secured Put position, there is potential for a +3.8% absolute return in 33 days (equivalent to a +41.8% annualized return-on-investment).
Twilio Inc. (TWLO) -- New 100% Cash-Secured Put Position
The transaction today was as follows:
05/17/2021 Sold 1 Twilio Inc. June 18th, 2021 $270.00 100% Cash-Secured Put options @ $9.85 per share.
Note: the Implied Volatility of this Put option was 52.3 when this position was transacted.
The Covered Calls Advisor does not use margin, so the detailed
information on this position and the potential result detailed below
reflect that this position was established using 100% cash
securitization for the one Put option sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $26,015.67
= ($270.00 - $9.85) * 100 shares + $.67 commission
Net Profit:
(a) Option Income: +$984.33
= ($9.85 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Twilio stock is above $270.00 strike price at the June 18th expiration): +$0.00
= ($270.00 - $270.00) * 100 shares
Total Net Profit (If Twilio stock price is out-of-the-money (above $270.00 strike price) at options expiration): +$984.33
= (+$984.33 option income +$0.00 dividend income + $0.00 capital appreciation)
Absolute Return (If Twilio is above $270.00 strike price at the June 18th, 2021 options expiration) : +3.8%
= +$984.33/$26,015.67
Annualized Return: +41.8%
= (+$984.33/$26,015.67) * (365/33 days)
The
downside 'breakeven price' at expiration is at $260.15 ($270.00 - $9.85),
which is 10.0% below the current market price of $289.04.
