How Large Option Traders Are Playing Expedia Amid Coronavirus Fears

Travel stocks have been volatile in recent weeks due to uncertainties surrounding the potential impact of the COVID-19 coronavirus outbreak on global travel.

Expedia Group Inc EXPE shares have rallied following a big earnings beat, and the online travel giant certainly has the attention of some large option traders on Thursday.

The Trades

On Thursday, Benzinga Pro subscribers received two option alerts related to unusually large trades of Expedia options.

• At 10:52 a.m. ET, a trader bought 642 Expedia call options with a $130 strike price expiring on Jan. 15, 2021 near the ask price at $11.397 cents. The trade represented a bullish bet worth $731,687.
• At 11:01 a.m. ET, a trader sold 1,336 Expedia call options with a $130 strike price expiring on Jan. 15, 2021 at the bid price of $12.801 cents. The trade represented a bearish bet worth more than $1.7 million.

Of the 12 total large Expedia option trades so far this week, six were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Five trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. One trade was executed near the spread midpoint, a price typically considered neutral.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the biggest Expedia trades at least some could potentially be institutional hedges.

See Also: The Most Effective Way Of Preventing The Spread Of Coronavirus

Coronavirus Uncertainty Remains

Stocks were pressured on Thursday on reports of 15 confirmed coronavirus cases in the U.S. While the virus isn’t particularly deadly compared to SARS or MERS and has a reported mortality rate of around 2%, it's reportedly much more contagious than the flu. That trait allows the virus to spread rapidly, and a widespread U.S. outbreak could grind travel to a halt.

Expedia has said it expects the virus to negatively impact first-quarter EBITDA by between $30 million and $40 million. The company said the negative impact will likely also persist beyond the first quarter and suspended its 2020 guidance until its gets more clarity on the situation.

Despite the uncertainty, Expedia shares initially gained more than 11% after the company reported a fourth-quarter earnings beat and slight revenue miss on Wednesday.

Bullish StockTwits message sentiment related to Expedia plunged from above 90% in mid-January to as low as 23.1% on Feb. 6. It has since recovered to 54.5%, suggesting traders are nearly split right down the middle at this point.

Benzinga’s Take

The ultimate scale of the outbreak and financial impact on the travel business is extremely uncertain at this point, so there is likely plenty of hedging going on in the option market right now as investors buy calls and puts as insurance against a large Expedia move in either direction. This week, at least, large trades in longer-dated Expedia contracts were very mixed, suggesting the smart money is as unsure about how the year will play out for Expedia as anyone else.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.