Travel site TripAdvisor (NASDAQ:TRIP) willreport third-quarter earnings after the close on Monday. Travel stocks have struggled this earnings season, with sector peer Ctrip.com International (CTRP) tanking after its report on Thursday. Plus, TripAdvisor found itself in hot water earlier this week, over a report that the travel website was removing user warnings about certain travel destinations. Below, we will examine TripAdvisor's earnings history and how options traders are positioning themselves ahead of next week.
At last check, TRIP stock is up 0.5% to trade at $38.41. The travel stock has pulled back since touching the $46 level in early September, shedding 17%. In addition, TRIP has underperformed the broader S&P 500 Index (SPX) by 18.5 percentage points during the past two months.
Historically speaking, the stock's post-earnings reactions have tended to be dismal, with TRIP closing lower the next day in seven out of the last eight quarters -- including a 16.6% dip a year ago. On average over this time frame, TRIP stock has posted a single-day swing of 7.8%, regardless of direction. This time around, the options market is pricing in a much higher 13.1% move for Tuesday's trading, per at-the-money implied volatility data. A similar move would send the stock to the $33 level, four-year-low territory.
Another post-earnings drop would have short sellers cheering. Though short interest has been declining since peaking at 21.69 million shares in mid-September, the 20.49 million TRIP shares sold short still represents a whopping 18% of the stock's total available float. In the options pits, put buying has dominated the picture, as evidenced by the equity's 10-day put/call volume ratio of 1.56 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the 85th percentile of its annual range. In other words, options traders bought to open TRIP puts relative to calls at a faster-than-usual clip during the past two weeks. Digging deeper, however, the weekly 11/10 39-strike call saw the largest increase in open interest during the past 10 days. Data from the major options exchanges points to buy-to-open activity here, so not everyone is bearish heading into the earnings event.