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Option Idea of the Week: TripAdvisor

TRIP may be a combination of strong technicals and lingering skepticism

by 2/1/2013 1:35 PM
Stocks quoted in this article:

Online travel research name TripAdvisor, Inc. (NASDAQ:TRIP - 46.36) has been on a journey of its own of late. Since reaching a short-term bottom of $28.63 on Nov. 1 -- the session preceding its third-quarter earnings report -- the shares have soared more than 60%. Also, since its December 2011 spin-off from Expedia Inc (NASDAQ:EXPE - 67.38) -- last week's Option Idea of the Week -- the shares have rallied more than 50%, in an environment that has been quite challenging for IPOs within the Internet sector.

During its recent uptrend, the shares have been guided higher by their 20-day moving average, which has not been breached on a closing basis since early November. The shares are now within striking distance of their annual high of $47.81.

Daily chart of TripAdvisor (TRIP) with 20-day moving average

Despite this impressive uptrend -- and the fact that TRIP has outperformed the S&P 500 Index (SPX) by 27 percentage points during the last three months -- the stock is awash in skepticism. To begin with, Schaeffer's put/call open interest ratio (SOIR) for TRIP stands at 1.31, meaning that put open interest easily exceeds call open interest for options expiring in three months or fewer. This ratio ranks higher than 88% of the past year's readings. A similar trend is reflected in buy-to-open activity at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The 10-day put/call volume ratio across this trio of exchanges stands at 4.45, with put orders more than quadrupling call orders during the past two weeks. What's more, this ratio stands in the 86th annual percentile. Broadening the scope, the 50-day put/call volume ratio weighs in at 1.09, higher than 78% of the past year's data points.

Elsewhere, more than 12% of TRIP's float is sold short, even though it appears some short sellers are hitting the exits. In the past two weeks, the total number of shorted TRIP shares has declined by 9.2%; in the past month, this number is down 15.6%. It would still take nearly eight trading days (at the stock's average daily volume) to cover all of the remaining bearish positions, suggesting that TRIP could benefit from continued short-squeeze activity.

Finally, analysts remain hesitant to board TRIP's bullish bandwagon. Nearly 60% of the analysts following the stock maintain a lukewarm "hold" rating on the shares. What's more, the average 12-month price target of $43.94 is actually a discount to the stock's current price. Future upgrades and/or price-target hikes could inspire more buying demand among current holdouts.

Option traders interested in jumping into TRIP might consider a longer-term, in-the-money position such as the June 42 call, currently asked at $7.30. Going out to the June month provides some cushion from near-term volatility surrounding the company's next earnings report, expected after the close on Feb. 13. And given the stock's Schaeffer's Volatility Scorecard (SVS) reading of 78, TRIP options are fairly priced of late, relative to the odds of a sharp move on the charts.


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