A Word of Warning to Expedia Stock Short Sellers Ahead of Earnings

EXPE stock could be ripe for a short squeeze

Managing Editor
Oct 25, 2017 at 12:15 PM
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Earnings season is at its busiest point, with a number of stocks trading lower today after disappointing results. Looking ahead, travel stock Expedia Inc (NASDAQ:EXPE) is slated to unveil its quarterly results after tomorrow's close, and will look to avoid the same fate as sector peer Trivago (TRVG). Here's a closer look at how EXPE stock has been performing ahead of earnings, and how traders both in and out of the options pits have been positioning themselves.

Expedia stock is down 1.5% today to trade at $148.55, as airline and travel stocks brace for new U.S. security rules that will go into effect tomorrow. The shares have pulled back this week, but the drop is being contained by their 100-day moving average -- a trendline that served as a springboard in August. Plus, the equity has tacked on an impressive 32% year-to-date.

The equity could be headed higher after earnings, too, should history repeat itself. Over the past eight quarters, EXPE shares have moved higher the day after earnings five times. On average, the equity has swung 4.6% in the subsequent session, regardless of direction, over the last two years. This time around, the options market is pricing in a larger move of 7.5% for Expedia stock. Another move to the upside could vault the shares to $160, within a chip-shot from their record high of $161.00, set after the company's last earnings report on July 28.

In spite of its impressive technical performance, short sellers continue to hang around the travel stock. Short interest is up nearly 60% since mid-March to 14.85 million shares, its highest point in over a year. This represents 12.4% of EXPE's total available float, and it would take more than seven days for shorts to fully cover their positions, at the stock's average trading volume. Should EXPE turn higher after earnings, it could fuel a short squeeze that may help propel the equity even higher. 

In the options pits, there has been a healthy appetite for long calls over puts in the last two weeks. EXPE boasts a 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 2.61, which ranks 3 percentage points from a 52-week high. 

Digging deeper, the stock's weekly 10/27 152.50- and 160-strike calls and 145-strike puts are home to peak open interest in the series that expires this Friday. Data from Trade-Alert suggests these options were initiated by one bullishly slanted trader last Thursday, who funded the purchase of their long call spread with short puts. In other words, they expect EXPE to rally right up to $160 after earnings, with any potential pullbacks contained near $145.

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