Short This Stock Before the Fed Meeting

TRIP stock hit an annual high earlier this week

Jun 8, 2018 at 2:02 PM
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TripAdvisor, Inc. (NASDAQ:TRIP) has put in a strong performance on the charts in 2018, up 61% to trade at $55.54, and not far from its June 5 annual high of $57.94. However, if history is any guide, it may be time to short -- or potentially buy protective put options -- on the travel stock ahead of next week's Fed meeting, where the fed funds futures are pricing in 91% probability of a rate hike (per CME Group).

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, TRIP has been one of the worst stocks to own after the Federal Open Market Committee (FOMC) raises interest rates, looking back to 2015. In fact, the equity wasn't higher on a week-over-week basis once following the last six rate hikes, averaging a one-week loss of 3.07%.

Given the stock's long-term technical tenacity, though, sentiment among options traders has been exceptionally bullish in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TRIP's 10-day call/put volume ratio of 2.79 ranks in the 72nd annual percentile, meaning calls have been bought to open over puts at an accelerated clip.

However, some of this call buying -- particularly at out-of-the-money strikes -- could be at the hands of short sellers hedging their bearish bets against any additional upside risk. More than 20 million TRIP shares are currently sold short, representing a lofty 19% of the stock's available float, or 4.3 times the average daily pace of trading.

Whatever the reason, it's an attractive time to purchase premium on TripAdvisor options. The stock's Schaeffer's Volatility Index (SVI) of 36% ranks in the 6th annual percentile, indicating short-term options are pricing in relatively low volatility expectations at the moment.



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