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Option Idea of the Week: Expedia

A capitulation to the bulls' camp could help EXPE extend its quest for record highs

by 1/25/2013 2:19 PM
Stocks quoted in this article:

Online travel concern Expedia Inc (NASDAQ:EXPE - 65.86) has been tearing up the charts lately, more than doubling over the past year, and tagging an all-time high of $66.30 earlier today. However, despite the security's long-term ascent, not everyone on Wall Street is convinced of the stock's strength. This technical muscle, juxtaposed with a glut of potential buyers on the sidelines, suggests EXPE could have more gas in the tank.

Digging deeper into EXPE's charts, the shares have found allies in their 10-week and 20-week moving averages, which have acted as support since November 2011. More recently, the equity has emerged as a broad-market standout, outperforming the S&P 500 Index (SPX) by nearly 17 percentage points during the past three months.

Weekly Chart of EXPE since November 2011 With 10-Week and 20-Week Moving Averages

Regardless of EXPE's impressive technical performance, the brokerage bunch remains wary of the stock. Just today, analysts at Nomura reportedly reiterated their tepid "neutral" rating and $62 price target, which represents a discount to EXPE's current share price. In the same vein, the average 12-month price target among analysts stands at $65.95 -- a level the stock has already surmounted in intraday trading today.

Elsewhere, short interest accounts for 9.5% of EXPE's total available float, underscoring our suspicions of ample skepticism surrounding the shares. In fact, at the stock's average daily trading volume, it would take more than a week to buy back all of these bearish bets.

Should EXPE extend its quest for record highs, a flood of upbeat analyst attention or a short-covering rally could push the shares even further into the black. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) stands at a lofty 80 -- implying that EXPE options are inexpensive relative to the probability of an outsized move on the charts, and suggesting now is an opportune entry point for option bulls to jump in.

Investors expecting EXPE to continue its upward momentum should consider buying the stock's in-the-money April 49.48 calls, which were last asked at $16.90.


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