Priceline Group Inc (PCLN) Options Are a Bargain as Company Eyes Cuba

Traders can currently pick up Priceline Group Inc's (PCLN) near-term options for a relative bargain

Mar 21, 2016 at 1:31 PM
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President Barack Obama arrived in Cuba Sunday for a historic three-day trip, which marks the first time a U.S. president has visited the country in 88 years -- a significant step toward normalizing relations between the two countries. Meanwhile, Priceline Group Inc (NASDAQ:PCLN) announced this morning that its brand will become the first firm to offer instant online booking for U.S. citizens at Cuban hotels, just months after the U.S. and Cuba agreed to restore commercial airline service between the countries. And while PCLN's recent rally takes a breather, this could be a prime time for near-term option traders to get in on the action.

Today, PCLN is trading 0.5% lower at $1,337.62, pulling back from a year-to-date high of $1,361.63, seen Friday. The stock began 2016 with a sharp dive south, hitting a two-year low in early February. But the shares have put in a strong rebound, thanks in part to a fourth-quarter earnings beat, and are now ahead 4.9% for the year, with their 160-day moving average resuming its role as support.

While analysts seem mostly on board -- 10 out of 17 rate the equity a "buy" or better, without a "sell" in sight -- option traders remain remarkably bearish. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PCLN's 50-day put/call volume ratio of 0.90 is higher than 92% of all readings from the last 12 months.

Likewise, short-term traders are holding puts over calls at an unusual degree. PCLN has a Schaeffer's put/call open interest ratio (SOIR) of 1.23 -- in the 91st percentile of its annual range.

Today, however, it's a different story. Though overall option volume is relatively low, calls are clearly the option of choice. Specifically, some possible buy-to-open activity has been spotted on the weekly 3/24 1,365-strike call -- the most popular option of the day. Buyers of these calls are betting on substantial moves to the upside before the weekly options expire this Thursday.

And it appears this could be a prime time to buy PCLN's near-term options, as the security's Schaeffer's Volatility Index (SVI) of 22% sits lower than 92% of the past year's readings. That means the options market is pricing in relatively low volatility expectations, making short-term Priceline Group Inc (NASDAQ:PCLN) options a relative bargain.

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