How To Trade Priceline Following Earnings
Dragonfly Capital | May 07, 2015 12:42AM ET
Travel is always hot and with the euro beaten down overseas travel has been expected to be good. But what impact will that have on travel stock Priceline.com? Wall Street Analysts expect a report of $7.80/share on $1.809 billion in revenue. The crowd sourced Estimize figures are a bit higher at $8.11/share on $1.842 billion in revenue. But it is how the price reacts that matters to traders. Are you too late? Never too late to negotiate says the Shat.
Technically, Priceline.com (NASDAQ:PCLN), can be viewed as a massively wide bull flag after a run higher from the 650 area. That would target 1700. Probably not Thursday. But the price action is positive short term. A higher high this week gives a target on a Measured Move to 1380. The RSI is rising and the MACD is going up as well. There is support lower at 1250 and 1220 followed by 1180 and 1130. There is resistance higher at 1315 and 1375 before free air.
The reaction to the last 6 earnings reports has been a move of about 4.77% on average or $61 making for an expected range of 1215 to 1335. The at-the money May 8 weekly Straddles suggest a larger $70 move by Expiry with Implied Volatility at 83% above the June at 28%. Short interest is low at over 2.4%. Open interest is light this week but biggest at 1300 and is similar in the May monthly contracts next week as well.
Priceline.com
I offered several ways to trade it using options ahead of the report here:
Trade Idea 1: Buy the May 8 Expiry 1275/1300 Call Spread for $12.90
Trade Idea 2: Buy the May 8 Expiry 1275/1300 Call Spread and sell the May 8 Expiry 1222.5 Put for free.
Trade Idea 3: Buy the May 8 1275/1300/1325 Call Butterfly for $5.50.
Trade Idea 4: Buy the May 8 1275/1300/1325 Call Butterfly and sell the May 8 Expiry 1180 Put for free.
Trade Idea 5: Buy the May 8 Expiry 1300/1325 Call Spread ($9.60) and sell the May 8 Expiry 1207.5 Put for free
All look for a move higher. #1, #2, #3 and #4 give a tight participation looking for 1300 to hold or be a magnet Friday. #2 and #4 use margin and leverage. #5 gives a higher spread with leverage much lower. I like #3 over #1, so #4 over #2. #4 is most favored.
But with the options market closed it is time to look at what to do as the price reacts to the report Thursday morning. With the chart above as a guide the long term view looks best to the upside, provided any pullback does not break below the yellow rectangle. A short pullback can be viewed as a technical buying opportunity. Personally I would wait a few days to see if you can get the stock even lower if that is the case. But with the implied volatility wrenched out of the options by mid day a buy with an options hedge should be all right as well. Just not below the yellow box.
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