Unusual Options Activity In Hilton Worldwide $HLT

| June 17, 2015 | 0 Comments

$HLTUnusual Options Activity In Hilton Worldwide $HLT

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Hilton Worldwide $HLT is a large, well-known hotel operator.  The company generates over $10 billion a year from its Hilton, Doubletree, Embassy Suites, Hampton Inn, and several other hotel chains.  For a good description of the company, follow the link.

$HLT is trading at $28.03, up 7% for the year.  That’s 11% below the 52-week high and 35% from the 52-week low.

So what does unusual options activity in HLT tell us?

With the markets under a bit more pressure this month, high valuation stocks have been pulling back across the board.  $HLT, trading at a roughly 40x P/E, is one of those fairly expensive stocks which has slowly been trending down (down 5% over the past month).

However, despite the lofty valuation, the rest of the hotel giant’s fundamentals are reasonable to good.  Moreover, analysts have yet to lower their target price for the stock, which averages about $33 per share.

Here’s the deal…

This week, a complex bullish trade occurred in $HLT options.  The trade consisted of a long call spread plus short puts.  This type of a spread is a pure bullish strategy and makes money when the underlying stock goes higher.

More specifically, a trader purchased 5,000 October 29 calls for $1.39.  At the same time, October 32 calls were sold for $0.50, also 5,000 times.  Finally, October 26 puts were sold 5,000 times for $0.70.  That means the total cost of the trade was $0.19, or just $95,000.

The goal of the short calls and short puts is to significantly lower the cost of the long calls.  Instead of paying $1.39 to get long the 29 strike, the trader is now just paying $0.19 per spread.

In return for the reduced cost, the trade’s upside is capped at $32.  Plus, the trader risks becoming long the stock at $26 should the share price fall below that level.

On the other hand, max gain on the trade is a robust $1.4 million in profits!

Here’s the chart of $HLT:

unusual option activity, a chart of HLT

The stock price had mostly been in an uptrend until this last month.  The shares are now diverging from the 50-day moving average.  The next major support level is around $27.

There’s enough support at $27 and $26 to suggest downside risk is minimal.  What’s more, the 52-week high is $31.60, so $32 seems to be a very reasonable cap.  Keep in mind, this trade doesn’t expire until October.

Given the parameters, this looks to be a very savvy trade.  The trader is getting a decent amount of upside potential for very cheap.  And, downside risk looks to be reasonable given the technical picture.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.