Play Priceline.com Current Trend

Priceline.com (PCLN) is setup for a short-term (7-day) bearish option strategy. Investors could simultaneously: 

Sell the July week-one expiration PCLN Industries $845 call for $1.88 (yesterday's closing price)

AND

Buy the $850 call at $1.10 (yesterday's close) 

The difference between funds received and paid out is a .78 per share credit which we keep if Priceline.com closes below $845 on Friday July 5^th, but immediately exit the position if it appears the price will end up higher. If the stock price gaps higher then we will probably initiate the call spread at a higher strike prices with the same risk profile as described above. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.                                                                                                          

Why we recommend it:

As observed in the chart down below, Priceline.com, Inc. (Nasdaq: PCLN) stock price has been stuck in neutral for the past month. The upper green line highlighted on the chart confirms the price has been held below this level since the middle of May. The lower green line is the price support that the stock has remained above for the past month. The upcoming fourth-of-July holiday should be a slow, short trading week as traders take vacation time to go to the beach. Unless something extraordinary happens over the next few days, expect the current trends for the market and Priceline.com stock to continue. 

Priceline.com has reward shareholders as the stock is up almost 30% this year. Also Priceline.com used very little of its cash on capital expenditures which allowed the company to devote much of its cash flow from operations into stock buybacks. The long term question is whether Priceline.com stock has become too expensive compared to its competitors. Future earnings and revenue growth will have to remain extremely high for priceline.com stock to maintain its lofty valuation. A Forbes article mentions that Short sellers may already believe Priceline.com will decline as the stock made the list of the most shorted Nasdaq 100 components. We are betting Priceline.com shares remain constrained during the holiday, at the very least there is a high probability the stock will remain below the target price for another week.