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Expedia Option Trader Bets $4M On 73% Upside From Here

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Expedia Option Trader Bets $4M On 73% Upside From Here

Shares of Expedia Group Inc (NASDAQ: EXPE) traded higher by 5% on Tuesday as traders become increasingly optimistic following reports from President Donald Trump and others that growth in new COVID-19 cases has stabilized.

Despite a complete lockdown of global travel, Expedia shares are rocketing higher this week, and at least one large options trader made a massive bet on Tuesday that the best is yet to come.

The Trades

On Tuesday, Benzinga Pro subscribers received two option alerts related to an unusually large Expedia option trades:

  • At 11:12 a.m. ET, a trader sold 500 Expedia call options with a $100 strike price expiring in January 2022. The contracts were sold near the bid price at $7.60 and represented a $380,000 bearish bet.
  • At 11:13 a.m. ET, a trader bought 5,122 of the same Expedia call options with a $100 strike price expiring in January 2022. The contracts were purchased at the ask price of $7.901 and represented a $4.04 million bullish bet.

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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 largest Expedia option trade, there’s certainly a possibility it could be a hedge on a large short position in Expedia stock.

Playing The Long Game

Travel stocks took a big hit during the initial market sell-off because of two primary factors. In the near term, travel restrictions around the world have grounded many flights and cruises and closed many hotels and resorts. In the longer term, even once those restrictions are lifted, it’s unclear how willing customers will be to return to their previous levels of travel given the virus likely isn’t going away anytime soon.

Expedia was dealt a blow from Wall Street in late March when Goldman Sachs downgraded the stock to Sell and said investors seem to be too optimistic about a quick bounce-back in Expedia’s business. In the meantime, Goldman said Expedia’s balance sheet is limiting its flexibility and the company needs to reduce costs and investments.

The $4.04 million call purchase has a break-even price of $107.60, suggesting 73.4% upside for the stock over the next 21 months. That upside may seem extreme, but Expedia was trading as high as $124.28 less than three months ago.

Bullish sentiment among StockTwits messages mentioning Expedia was at 20% on Tuesday, up from its 2020 low of 2.2% on March 5.

 

See Also: How To Read And Trade An Options Alert

Benzinga’s Take

The consensus opinion is that global travel will likely eventually return to levels that are at least comparable to pre-outbreak levels, but the $4.04 million-dollar question is how long it will take to reach that point. Tuesday’s call buyer seems to be giving Expedia all of 2020 and all of 2021 to get back near its February highs.

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

 

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