Execute Expedia Trade by Selling Put Options

This is how I plan to execute the Expedia trade. Here is briefly why we think Expedia is a good buy: https://newsletter.finset.ai/p/expedia, however, Expedia stock also has a decent volatility index. What does that mean? It means that we can earn a good enough premium by selling put options & in the worst-case scenario end up purchasing Expedia at a lower price. Win-Win.

Enter a Position by Selling Puts Instead of Buying the Stock

If you are not familiar with Selling Put Options here is a quick rundown of how that works: https://newsletter.finset.ai/p/why-sell-put-options

This is the plan for Expedia:

We like the stock at a price of around $131. We will be happy to buy the stock outright for $131. This is important. Do your research, if the stock is not attractive at its current price, selling puts is not a great strategy.

• Instead of buying 100 shares of EXPE and spending $13,100, we will put that money as collateral and earn a premium on it by selling a put option at a lower strike price.

• The strike Price we are looking at is $126 which pays a premium of $3.25 and has a probability of profit of 81% and an expiration date of May 31, 2024.

Sell May 31'24 Put with Strike of 126

What does it all mean?

It means we sell a put contract (100 of them) and get paid $325 right away. In return, we put up $12,600 in cash collateral and only have to spend it if the stock price drops to $126 by May 31st. Remember, we love Expedia at $131 so owning it at $126 is not a big deal and we get to keep $325 regardless of the outcome.

What is the rate of return on this trade?

We are essentially locking in $12,600 for 31 days and are getting a guaranteed return of $325. 325/12600 = 2.57% in 31 days or 34.82% annualized which is an incredible return

On top of that, our brokerage earns 4.81% interest on cash held in the account. $13,100 dollars that we don't spend on buying Expedia right away earns an additional $52 in 31 days.

Total Return is $377 in 31 days or just over 41% annualized.

What if it all goes wrong?

If the stock falls to $126 or below, we are forced by the contract to purchase 100 shares for $12,600. That is the risk, especially if the stock falls to way below $126.

However, as mentioned before, we like the stock at $131, and believe that it will be fairly priced at $200 in a few years if the earnings growth stays on the same trajectory so it is no bother

Happy Investing,
Andy

Disclaimer

I currently do not have an active position in EXPE but am thinking of initializing in the next few days. As usual, the information provided in this newsletter is for general informational purposes only. All information in the newsletter is provided in good faith, however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information. The content of this newsletter does not constitute financial advice, investment advice, or any other type of advice and should not be relied upon for any individual circumstances. We are not financial advisors, and you should consult with a professional before making any investment decisions. Any action you take upon the information in this newsletter is strictly at your own risk, and we will not be liable for any losses and/or damages in connection with the use of our newsletter.