Online travel services specialist Priceline Group Inc. (NASDAQ:PCLN) will enter the earnings confessional after the close of trading this Thursday, and PCLN stock is facing a mixed sentiment backdrop ahead of the report.
Priceline stock has traded in a broad range for the past several months, but the shares are poised to confront the key $1,400 level following a positive earnings reaction.
PCLN stock trades at lofty levels, making it hard for stock traders to get in on any post-earnings moves, but, with options, there’s a much more cost-effective way to play Priceline’s report.
First, let’s take a look at expectations and sentiment. By the numbers, Wall Street is expecting Priceline earnings to rise just 1.9% to $12.69 per share. Revenue is forecast to rise 13.3% to $2.58 billion.
That said, whispers on Wall Street place Priceline earnings at $13.02 per share, according to EarningsWhispers.com.
As for sentiment, PCLN stock has a mixed backdrop. According to data from Zacks, Priceline has attracted 12 buy ratings, five holds and one sell rating. This largely bullish ratings configuration is diminished by a weak consensus 12-month price target, which arrives at $1,470 and represents a premium of only about 9.3% to PCLN’s current perch.
Short sellers have recently ramped up their interest in PCLN stock. As of the most recent reporting period, about 1.6 million PCLN shares are sold short. The resulting short-to-float ratio of 3.2% is modest at best, but the 17% rise during the recent period could be a sign of rising pessimism ahead of Priceline’s quarterly report.
Turning to the options pits, we find another source of bearish sentiment for PCLN stock. Specifically, the August put/call open interest ratio comes in at a reading of 1.12, with puts outnumbering calls among options set to expire within the next month. This ratio dips to 0.85 when we zero in on weekly August 5 series options — i.e. those that are most affected by Priceline earnings.
Overall, weekly August 5 series implieds are pricing in a potential post-earnings move of about 6.3% for PCLN stock. As such, the upper bound lies at $1,429.45, while the lower bound lies at $1,260.55. A rally would place PCLN above potential psychological resistance at $1,400, creating the possibility of extended follow-through buying from technical traders.
Meanwhile, a selloff would leave PCLN stock north of $1,200, setting the stage for continued choppy, range-bound trading.
2 Trades for PCLN Stock
Click to Enlarge Call Spread: For those traders willing to side with the brokerage community, an August $1,350/$1,400 bull call spread has a good chance of hitting a maximum return.
At last check, this spread was offered at $24.70, or $2,470 per pair of contracts. Breakeven lies at $1,374.70, while a maximum profit of $25.30, or $2,530 per pair of contracts, is possible if PCLN stock closes at or above $1,400 when August options expire.
Put Sell: On the other hand, if a bullish play feels too aggressive in the current market, or if PCLN stock options premiums are a bit too steep at the moment, you might consider a deep-out-of-the-money weekly August 5 series put sell — the $1,200 strike looks promising.
At last check, the August 5 series $1,200 put was bid at $1.55, or $155 per contract. As with all put sell positions, you keep the initial premium received as long as PCLN stock trades above $1,200 ahead of weekly August 5 series expiration this Friday.
However, if PCLN trades at or below $1,200 ahead of expiration, you could be assigned 100 shares of PCLN stock at $1,200 each for each put contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
