Options Traders Turn Bearish On Expedia Before Earnings

Options traders have turned bearish on Expedia Inc (NASDAQ:EXPE), despite the stock's history of positive post-earnings price action

Josh Selway
Feb 8, 2017 at 10:53 AM
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Internet travel stock Expedia Inc (NASDAQ:EXPE) has an impressive history of making strong moves after earnings. Going back eight quarters, the shares have moved higher in the session after earnings six times, averaging a one-day gain of 8.3%. With the company scheduled to report quarterly results after the bell on Thursday, EXPE has been climbing the charts. Options traders, nonetheless, have been taking a bearish stance. 

Looking at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has more than doubled during the past two weeks, currently resting at 1.81. Not only does this mean put buying has nearly doubled the rate of call buying, but the ratio stands above 88% of similar readings from the past year -- hinting at an unusual bearish bias. Underscoring this put bias is EXPE's Schaeffer's put/call open interest ratio (SOIR) of 1.22, which is just 8 percentage points from a 12-month high. 

A closer look reveals the weekly 2/10 116-strike put saw the largest increase in open interest during the past two weeks, with the 112- and 120-strike puts from the same series next in line on the put side. Drilling down even further, it looks like the bulk of this activity occurred on Jan. 30, when one speculator initiated a pre-earnings put butterfly spread, according to Trade-Alert. In other words, she's eyeing a move down to $116 by this Friday's close -- more than 5% below the stock's current perch.

In the meantime, short sellers have been throwing in the towel in recent months. By the numbers, Expedia short interest has declined nearly 32% since its most recent peak in mid-September, yet these bears still control 8.8% of the stock's float -- or roughly a week's worth of buying power, at average trading volumes. As such, there's still plenty of cash on the sidelines that could come in and help the equity gain on the charts. 

Even with earnings right around the corner, near-term Expedia Inc options are not pricing in elevated volatility expectations. The stock's Schaeffer's Volatility Index (SVI) currently sits at 47%, putting it in the low 29th annual percentile. Meanwhile, the options market is pricing in a 9% post-earnings move for EXPE. At last check, the shares were trading near $122.64, up 32% year-over-year. 

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