3 Encouraging Developments for Expedia, Inc. (EXPE) Bulls

Expedia Inc (EXPE) calls are trading at two times the average intraday pace today

Jan 23, 2015 at 2:11 PM
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Expedia Inc (NASDAQ:EXPE) is up 3% this afternoon to trade at $88.34, following news the online travel issue is buying Travelocity from Sabre Corp (NASDAQ:SABR) for $280 million in cash. Options traders are responding in kind, scooping up calls at a rate two times the intraday average.

Receiving notable atteniton is EXPE's weekly 2/6 87-strike call, and all signs suggest new positions are being purchased. By buying to open the calls, speculators expect EXPE to be sitting north of the strike at the close on Friday, Feb. 6 -- when the weekly series expires -- a time frame which includes the company's next turn in the earnings confessional.

Today's accelerated call activity is just more of the same for a stock that's rallied 33% over the past 52 weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, EXPE's 10-day call/put volume ratio of 5.63 ranks in the 81st percentile of its annual range. However, with nearly 12% of the equity's float sold short -- representing more than a week's worth of pent-up buying demand, at average daily trading levels -- some of this activity may be a result of shorts hedging against any additional upside.

Good news for the "vanilla" call buyers, though. As touched upon, the firm is slated to report its quarterly results after the close on Thursday, Feb. 5, and over the past four quarters, EXPE has averaged a single-session post-earnings gain of 5.6%. Additionally, after hitting a record peak of $92.08 in early December, the stock pulled back to its rising 160-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the four other times this signal has occurred over the past three years, Expedia Inc (NASDAQ:EXPE) has gone on to average a 21-day return of 2.4%, and is positive two-thirds of the time.

Daily Chart of EXPE Since November 2013 With 160-Day Moving Average
 

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