Update – Priceline (PCLN) Vacation Calendar

by CC July 6, 2017 2:12 pm • Trade Updates

About a month ago we wrote about Priceline, potential headwinds to Summer travel, and some longer term trends that could negatively affect the stock. At the time we detailed a way to dip a toe in the water on the short side without a large premium outlay (for a stock so large) and one that bought some time until the company reports in early August. Here was the trade and rationale from June 5th:

So What’s the Trade?

The Summer tourist season and August earnings is the catalyst. One way to reduce overall premium risk while positioning bearishly for the report in August is through a calendar put spread:


PCLN (1895) Buy the July/August 1800 put calendar for $22
  • Sell to open 1 July 1800 put at $13
  • Buy to open 1 August 1800 put for $35

With July expiration quickly approaching it’s a good time to check in on the trade and see if anything needs to be done yet. PCLN has spent most of the time since a little lower. Today, with the stock 1868 the initial trade idea is worth about $26 vs the $26 initially spent. Both options have decayed, despite the stock being lower, with the July short puts decaying more than the long August puts (the Aug puts are essentially unchanged). So one thing that means is the calendar has been the correct position so far, as any August verticals would have probably been a loser at this point, even with the stock lower.

As far as trade management, nothing needs to be done yet, but rolling the position depends on which direction the stock goes next, and when. 1800 has served as a bounce level on recent moves lower:

Whether the stock has another one of those moves in it before July expiration is anyone’s guess. This morning the stock got below 1850 but is now up on the day. I think the next move below 1850 is probably a good time for a roll, taking off the July 1800 puts and rolling to the August 1700 puts. Right now that roll would be for a credit, leaving a 100 wide put spread in August, that captures earnings for very cheap. But it will be even cheaper on the next move lower should that come. So patience could pay off here.

On the upside 1900 is probably a good spot to rethink the trade because that could start to look like a breakout into earnings, and 1800 might not be the best August put to own at that point. So we’ll check back in on this trade between now and July expiration, hopefully with a roll to August after a move lower in the stock, creating a very cheap earnings put spread.