Starwood Hotels & Resorts Worldwide (HOT) Options: Unusual Trading Activity
Options in mega resort hotel company, Starwood Hotels & Resorts Worldwide (HOT), showed a large amount of trading activity yesterday.
Just as we thought the market might be showing signs of a reversal… Bam! The Dow dropped 150 points and the S&P 500 shaved 17 points as most investors expected a positive day.
One stock that was especially weak was HOT, down over 3.5% to $50.22. Not only that, HOT has fallen 10% over the last month.
And as the market continued declining unexpectedly, we saw one option trader make a large bet that Starwood Hotels will continue its down trend.
Midday Monday, this trader came in and purchased 6,400 contracts of the HOT August $45 strike put options for an average price of $1.80 a piece.
The trade cost him a hefty $1,152,000.
This option trader must have a strong conviction that Starwood Hotels is going to move substantially lower.
And by purchasing these put options without an offsetting trade, he has unlimited upside potential. If he’s right, he stands to make a serious amount of money.
As a professional options trader, I wouldn’t hesitate at all to make this same trade.
It seems clear that this huge trade on HOT comes on the heels of some disturbing headwinds this company is now facing.
During 2009, Starwood’s stock had a five-fold increase. Since this lodging recovery is suspected to be fully priced into the stock, shares are said to now be fairly valued.
Starwood’s timeshare division is an unattractive business relative to its franchised hotel operations. The timeshare industry is mature, cyclical, and generates relatively low returns.
Company shareholders would benefit from a sale or spin-off of this division before the stock moves substantially lower.
Most importantly, HOT has a significant amount of debt on its balance sheet. This would certainly amplify the negative effects of any additional economic downturn.
At least one option trader seems very concerned.
It’ll be interesting to see if he’s right!
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
