Priceline Earnings Trade Review

Last week I offered some trading ideas for Priceline ($PCLN) ahead of its earnings report Tuesday night here. Below is an analysis of how they played out and what steps a trader in each would have made. The stock closed at Expiry Friday at a price of 1818.18. Here were the trade ideas:

Trade Idea 1: Buy the May 12 Expiry 1900/1850/1830 broken wing Put Spread for $16.

Trade Idea 2: Buy the May 12 Expiry 1910/1925 Call Spread ($9) and sell the May 12 Expiry 1815 Puts for free.

Trade Idea 3: Buy the May 12 Expiry/June 2000 Call Calendar ($16) and sell the May 12 Expiry/June 1850 Put Calendar ($14 credit) for $2.

Trade Idea 4: Sell the May 12 Expiry 1800/2000 Strangle for $14 credit.

 

The first trade was a bearish trade, buying a 1900 strike put and a 1830 strike put, and then selling 2 of the 1850 strike puts. All had last Friday Expiry. This trade cost $16 to put on. With a move down to 18.18 the price was below all three strikes. This made for closing price of $82 on the 1900 put, $32 on the 1850 put, and $12 on the 1830 put. This combination was worth $30 at Friday’s close. No action was required as your broker would auto-executed each leg, two shorts and two close outs, and end up putting $30 in your account for a gain of 87.5%.

The second trade was a bullish trade, buying a 1910 strike call and selling a 1925 strike call and a 1815 strike put all for last Friday’s expiration. This cost no money to put on as the put sale proceeds offset the call spread cost. At a price of 1818 Friday each leg of this combination expired worthless. A break even trade. A trader would have lost transaction costs and been charged for margin usage for 4 days.

The third trade was a bullish trade buying a 2000 strike call for June expiration and selling last week’s 2000 strike call. It also gave protection buying a 1850 strike put for last week expiration and sell a June expiration 1850 strike put. This 4 option combination gave a $2 credit to enter. At 1818 Friday, the May 2000 call expired worthless, but the May 1850 put was worth $32. A trader would have sold that put for $32. They would also continue to hold a June 2000 call and be short a June 1850 put. With Priceline moving higher Monday the trader can continue to hold these looking for a rebound above 1850 before June expiration, roll the short Puts down to a lower strike and out further to gain more time and price cushion, or could accept a loss of about $47 ($13 when netted against the $32 gain and the $2 credit to put the trade on).

The fourth trade was non-directional, selling both a 1800 strike put and a 2000 strike call that expired last Friday. This trade gave a $14 credit to enter. With the price at 1818 Friday both legs expired worthless and required no action. The trader would keep the full $14.

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