First Week of EXPE November 21st Options Trading

The article analyzes specific options strategies for Expedia (EXPE) investors, highlighting opportunities to enhance returns or reduce cost basis. It details selling a $220 put option for a $12.50 premium, which could result in a $207.50 cost basis if exercised or a 34.54% annualized return if it expires worthless. Additionally, it presents selling a $230 covered call for an $11.30 premium, offering an 8.81% total return if the stock is called away or a 30.98% annualized return if the option expires worthless, with both strategies having a 55% chance of expiring out-of-the-money.

Analysis

The analysis centers on two specific option strategies for Expedia Group (EXPE), leveraging its current option pricing and volatility profile. For bullish investors seeking an entry point, selling the $220 strike put contract for a $12.50 premium is presented as a method to potentially acquire shares at an effective cost basis of $207.50, a discount to the current $221.76 price. Alternatively, if the option expires worthless, which has a 55% probability, the strategy yields a 34.54% annualized return on the cash commitment. For existing shareholders, a covered call strategy involving the $230 strike offers an $11.30 premium, providing an immediate income boost equivalent to a 30.98% annualized yield. This strategy caps the total return at 8.81% if the stock is called away by the November 21st expiration. The comparison of implied volatility (41% for the put, 43% for the call) to the trailing twelve-month historical volatility (41%) indicates that option premiums are fairly priced relative to recent price action, with a slight elevation in call volatility suggesting higher demand for upside exposure.

Key Decisions for Investors

• For investors bullish on EXPE looking to initiate a position, selling the $220 cash-secured put could be a strategy to either acquire shares at a lower cost basis of $207.50 or generate a significant annualized yield if the stock price remains above the strike.
• Current EXPE shareholders could consider writing the $230 covered call to generate income, but must be aware that this strategy caps upside potential at a total return of 8.81% and they would be forced to sell their shares if the price exceeds $230 by expiration.
• Investors should note that the 55% probability of these options expiring out-of-the-money implies a substantial 45% chance of assignment, requiring readiness to either purchase the stock on the put side or sell it on the call side.
• Given that implied volatility is closely aligned with historical volatility, the options premiums represent fair value for income-generating strategies, not a distinct opportunity to sell unusually expensive volatility.