It has been a long year for many workers, and with the holidays fast approaching, it looks like it will be tough to slow down. But as counterintuitive as it might seem, sometimes you have to take time for yourself to be more productive. Here is a trade idea on Expedia (EXPE), which is doing well because people apparently are taking some time for their selves.
Expedia (EXPE — $62.59): Long Calls
The trade: Buy the EXPE April 60 calls for $7.30 or less.
The strategy: A long call is probably the most basic option strategy, and generally is used for a bullish outlook. The trade can profit if the stock moves higher and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because EXPE can continue to rise and the maximum loss is $7.30 or whatever was paid for the option if Expedia stock finishes below $60 at April expiration. Breakeven is $67.30 at expiration based on a cost of $7.30.
The rationale: Expedia is an online travel agency that has been performing well as of late. EXPE posted third-quarter earnings in late October, and the results were perceived as positive, as indicated by a monster move higher in Expedia stock. Earnings rose 7 cents per share more than expected, and revenues handily beat estimates, too.
The competition is steep, with many sites competing for your travel dollar, but it appears there might be enough room for several. Priceline.com (PCLN) recently announced earnings as well and handily beat expectations as well. Just this week, in fact, Goldman Sachs raised their price target on PCLN, so the sector looks awfully bullish.
Click to Enlarge If you take a peek at the Expedia stock chart, you probably will notice the big gap up after earnings and how the stock has pretty much maintained that level and moved higher.
On Thursday, EXPE closed above some resistance at $62. A bullish sign for the stock and a possible continued move higher would be if EXPE closes above that level again with some conviction. Next resistance looks to be around $66, which is where prior pivot highs existed back in July.
With an outlook for a continued move higher and option premiums being relatively cheap due to low implied volatility, this trade idea might pay for a vacation booked through Expedia.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.