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Option Brief: Call traders took a shine to Expedia Inc (NASDAQ:EXPE) yesterday, as approximately 19,000 contracts switched hands throughout the session. This was about triple the security's typical single-session call volume, and 4,000 more than the number of puts exchanged. Digging deeper into the data, it appears that the front-month series of calls was in the spotlight ahead of the firm's turn in the earnings confessional tonight.
Snagging the lion's share of the attention was the November 55 strike, where 7,421 calls crossed the tape -- about two-thirds of them at the ask price, suggesting they were bought. Additionally, open interest at this strike surged by 4,307 contracts overnight, confirming the initiation of new long positions.
By purchasing the calls to open, the speculators are counting on EXPE to muscle north of the $55 mark by front-month options expiration. This reflects a rise of 9.6% from the stock's current price at $50.16, as well as territory not explored since July 25 -- the day before a sizeable earnings-induced bearish gap.
It should also be noted that short interest on the Internet travel issue surged by almost 17% during the past two reporting periods, and now accounts for 13.6% of EXPE's available float. This raises the possibility that some of yesterday's out-of-the-money call buying could be the result of hedging activity by skeptics.
Due largely to the aforementioned plunge, Expedia Inc (NASDAQ:EXPE) has shed around 19% year-to-date. Meanwhile, the company will reveal third-quarter earnings following tonight's closing bell. In its last three earnings reports, EXPE has fallen short of analysts' estimates twice, and has declined the day and week after reporting -- potentially bad news for yesterday's bullishly motivated call buyers.