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Record Highs Expected for Expedia Inc (EXPE) Post-Earnings

Expedia Inc will report earnings after tomorrow's close

by 7/30/2014 3:12 PM
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Call players are targeting Expedia Inc (NASDAQ:EXPE) today, as the online travel issue prepares to take its turn on the earnings stage after tomorrow's close. At last check, calls were trading at five times the average intraday pace, and outstripping puts by a more than 2-to-1 margin. Meanwhile, the equity's 30-day at-the-money implied volatility is up 2.0% to 60.0% -- in the 92nd percentile of its annual range -- indicating accelerated demand for EXPE's short-term options.

Drilling down, the August 85 call has seen the most action in EXPE's options pits, with 4,131 contracts on the tape thus far. The majority of these traded at the ask price and IV has popped 4.3 percentage points, pointing to the purchase of new positions. At-expiration breakeven for these call buyers is $88.22 (strike plus the volume-weighted average price of $3.22), with profit accruing on each additional step north of here. Conversely, losses are limited to the initial premium paid, should EXPE finish south of the strike at the close on Friday, Aug. 15, when front-month options expire.

While both the aforementioned strike and breakeven mark sit north of the equity's all-time high of $82.36, which was tagged on July 3, EXPE has done well since hitting its most recent low of $67.39 on May 8, with the shares up 20.5% to trade at $81.21. However, with short interest accounting for a lofty 9.9% of the stock's available float -- representing 8.7 times EXPE's average daily trading levels -- some of today's call buying could be a result of shorts hedging against any earnings-induced upside.

While EXPE has had a number of volatile post-earnings price moves to both the upside and downside over the past seven quarters, history does tend to side with the bulls, with the stock averaging a single-session gain of 0.6%. Should the equity jump double-digits in the session subsequent to earnings -- as it did last October and this past February -- there is plenty of room for a short-covering rally to help fuel the security's fire. For Expedia Inc's (NASDAQ:EXPE) second quarter, Wall Street is calling for a profit of 76 cents per share -- a 12-cent improvement over what the company earned one year ago.


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