Call Options Or Put Options On (PCLN)?

| June 20, 2014 | 0 Comments (PCLN) is an online travel, hotel reservation, and rental car booking company.  PCLN stock is sitting right at its 50-day moving average and looks like it could be ready to make a move.  But will it be higher or lower?

PCLN shares recently traded at $1191.90, up 3% year-to-date.  The stock’s down 14% from the 52-week high of $1378.96 and is 51% above the 52-week low of $791.15.

Is this an opportunity to buy call options on PCLN because the company’s acquisition of OpenTable (OPEN) was a smart decision?  Or should you buy put options on PCLN because the company paid too much for OPEN?

The bulls make a convincing argument…

This week, PCLN agreed to purchase OPEN in an all-cash deal for $103 per share.  OPEN is an online restaurant-reservation company which helps connect restaurants to diners.

OPEN seats about 15 million diners per month at over 31,000 restaurants.  That means PCLN is extending its presence to a significantly-sized group outside of online travel and hotel/car bookings.

Moreover, many OPEN customers use the site when they travel, so it’s a perfect complement to PCLN’s existing business.  PCLN management continues to make shrewd acquisitions to grow business, and OPEN is just another good example of a strong strategic move.

But the bears have a compelling case as well… 

On the other hand, OPEN wasn’t exactly cheap. PCLN paid $2.6 billion for the company, representing a 46% premium on the share price prior to the announcement.

At the buyout price, OPEN shares are trading at 112x earnings and 45x projected earnings.  Clearly, this was an expensive transaction.

While PCLN is looking to expand into new markets, they’re spending an awful lot of cash for a company that doesn’t have the earnings to back up the price tag.  That’s a nearly $3 billion gamble to make on the company.

So is it time to be bullish on PCLN because of its OPEN acquisition, or should you take a bearish position because the company spent too much on the purchase?

If you think the bulls are right, take a look at buying the PCLN July 19th $1,325 calls for around $3.00.

If you think the bears are right, take a look at buying the PCLN July 19th $1,050 puts for around $2.75.

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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