PCLN Stock: Play the Odds With This Priceline Earnings Trade

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Earnings season is moving into the later innings, but we still have plenty of marquee names stepping up to the plate.

Priceline (PCLN) — at more than $1,200 per share, a richly priced stock if there ever was one — is slated to report earnings Wednesday morning before the bell, so spectators have a couple days to place their bets.

Since its meteoric rise peaked in early 2014 near $1,400, PCLN stock has settled into a holding pattern. Despite a handful of earnings announcement having come and gone, nothing has been able to knock Priceline out of its trading range.

Aided by the recent surge in the Nasdaq and all things tech, PCLN stock has rallied nicely over the past month bringing it right up to a key short-term resistance level at $1,270. A successful break above that following earnings could spark a run back to Priceline’s all-time highs.

Priceline PCLN stock chart
Click to Enlarge
Source: OptionsAnalytix

With an implied volatility rank of 77%, option premiums are elevated heading into Priceline earnings — as usual. While you can’t ever escape the binary nature of quarterly earnings for stock prices, you don’t have to fly into the event blind.

Option prices reveal something we option traders like to call the “expected move.” Think of it as the marketplace’s best guess as to how much PCLN stock will jump (or fall) post-earnings. Currently the expected move is $73, which translates into about a 6% move in Priceline.

PCLN Iron Condors

If you’re willing to bet that PCLN stock gaps as much or less than expected, consider selling the richly priced options via an iron condor. The iron condor is a popular non-directional strategy that consists of shorting an out-of-the-money put and call vertical simultaneously.

By using far out-of-the-money options, you can really amp up your probability of success.

Sell the PCLN Aug $1,410/$1,415 call vertical for 55 cents and sell the Aug $1,110/$1,105 put vertical for 50 cents.

The max reward is limited to the initial $1.05 net credit received and will be pocketed if PCLN stock can remain between $1,110 and $1,410 by August expiration. The options are currently pricing in about an 80% chance you will capture the max reward.

The max risk is limited to the distance between strikes minus the net credit, or $3.95, and will be forfeited if PCLN stages a monster move carrying it above $1,415 or below $1,105.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/play-odds-pcln-stock-earnings-trade/.

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