3 Reasons I Would Not Short Twilio (TWLO)

Internet infrastructure play Twilio (TWLO) is one of the hottest stocks in the market, having nearly tripled off the June lows.

TWLOeer

This morning, it hit fresh a high of $64.16 before pulling back to $60.71.

A lot of folks are now talking about betting against Twilio, but I would not consider shorting it for 3 simple reasons:

1) Put Skew

There is a significant put skew in TWO options, meaning traders are paying up a lot more money for puts than they are for calls.

For example, October $60 put is going for $11.20 while the call is just $7.50.

This is a sign that options traders are desperate to bet against the stock, a sign of massive embedded negativity.

2) Ramping Put Volume

Put options volume has exploded.

Today, 6,300 TWLO puts have traded.

Yesterday, 27, 308 traded.

The day before, 5,578 traded.

In the 29 days prior, it traded an average of just 1,306 puts a day.

This is another sign that traders are desperate to bet against the stock.

3) High Short Interest

Short interest is 24% of the float as of 7/29, and judging by the options action, it's probably even higher today.

Conclusion

The current setup in Twilio is eerily reminiscent of GoPro (GPRO) and Ambarella (AMBA) in late 2014.

In both cases, we were looking at fad stocks with huge momentum that were also very crowded shorts.

The bears arguing that “what goes up must come down” got steamrolled.

If the market falls, odds are Twilio (TWLO) drops too.

But make no mistake — if you short this stock, you are playing with fire, because it is indeed a very crowded short.

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