Trading Twitter ($TWTR) Options: Eye On Implied Volatility

moneybeat-logo  Courtesy of Kaitlyn Kiernan, Wall Street Journal

Twitter Inc.’sTWTR -1.67% frenzied initial public offering last week is about to be followed by a highly anticipated debut on Friday of options tracking the company’s stock.

But with such a short track record in the stock, prices on the newly listed options contracts might be volatile, options traders say, as they try to pin down an important aspect of an options price.

One key aspect of an option contracts price is a measure known as “implied volatility,” or an estimated measure of the magnitude and frequency of future stock price swings. But with options trading beginning just over a week after the initial offering, there is little data on which to base such a measure.

“It’ll probably take a couple days to figure out where [implied volatility] should fall in,” said Mickey Harned, a broker at WallachBeth Capital LLC. “When GoogleGOOG -0.12% options started, the [implied volatilities] were all mispriced and people lost a lot of money, so people are going to be afraid to make too large a market,” he said.

That means Twitter options traded Friday might be in smaller blocks of less than 100 contracts, Mr. Harned said.

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