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Eleventh-Hour Option Bulls Pounce on

PCLN traders are buying very short-term calls

by 1/25/2013 1:37 PM
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The shares of Inc (NASDAQ:PCLN - 711.03) are up significantly in afternoon trading, triggering a wave of short-term bullish betting. At last check, the online travel titan has seen roughly 28,000 call options change hands -- nearly five times its average intraday call volume. On the flip side, just about 14,000 PCLN puts have crossed the tape.

Digging deeper, option bulls are establishing new positions at the soon-to-expire weekly 1/25 700- and 710-strike calls, which have each seen more than 2,100 contracts exchanged. Most of the calls have crossed at the ask price, and volume has exceeded open interest at each strike, underscoring our theory of newly bought bullish bets.

More specifically, the volume-weighted average price (VWAP) of the 700-strike calls is $3.21, indicating a breakeven level of $703.21 (strike plus VWAP) -- a level the shares have already put in the rearview mirror. Meanwhile, the VWAP of the 710-strike calls is $1.68 meaning the buyers will reap a reward if PCLN conquers the $711.68 level, surpassed just briefly around midday.

Widening our sentiment scope, we find that short-term options traders were already bullishly biased, even before today's rally. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.80 indicates that calls comfortably outnumber puts among options with a shelf-life of three months or less. Even more telling, perhaps, this ratio sits just 2 percentage points shy of a 52-week nadir, suggesting near-term options players have rarely been more call-skewed during the past year.

At last look, PCLN is up 4.7% to wink at the $711.03 level, after touching an intraday peak of $713.73. Bolstering the security could be an analyst nod, after Piper Jaffray said the company "has a dominant position in emerging markets," and could benefit from "remarkably healthy" European hotel growth. Elsewhere, Nomura Securities reportedly raised its price target on PCLN to $820 from $730, and lifted its 2012 and 2013 earnings estimates for the firm.


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