When the pandemic began, some of the hardest-hit stocks were in the travel industry. Armed with very little information and a constant barrage of bad news in the media, nobody wanted to set foot in an airplane, hotel, or cruise ship.
But now, science has caught up to the virus, and we know a lot more about what it takes to stay safe.
What that means is people are going to start traveling a bit more. It won't be like it was before, but it will likely be a good start. And that means people will look once again to online booking sites. They will compare prices, look at amenities and schedules, and start to get out of the house.
Fundamentally, the businesses they serve are seeing more bookings and generally less fear and more interest. Not to mention, as online companies, they have rather low overhead; not being saddled with lots of commercial rent payments draining cash flow.
That has traders eyeing pick-and-shovel plays in the travel industry like booking sites. But just trading any old stock here is a recipe for failure. What you need is a little research to build a profitable options strategy to take advantage of this rebound.
Money Morning Quantitative Specialist Chris Johnson has just the plan. He's bullish on the travel booking stocks, but he's building his options trading strategy around a technical indicator that shows which stocks are most likely to run higher.
And the stock he's building his trade around has many attractive features. Chris likes that the rising trend has developed to the point where the 50-day moving average just crossed above the 200-day average. You may have heard this called a "Golden Cross" before. As the name suggests, it is a bullish event and tells us the trend is setting in and the stock is heading higher. The short-term trend is now aligned with the long-term trend.
Using such technical indicators is a great way to find out if the market agrees with your fundamental assessment of the company. For this stock, that answer is "yes."
Now that we've found the right stock to trade, it's time to build our options strategy around it.
And the trade Chris put together could double your money...
The Best Options Trade to Make Now
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The stock we are talking about is Expedia Group Inc. (NASDAQ: EXPE). It is the go-to site for travelers looking for rooms, rental cars, and other travel information. And as of last week, it had erased about 75% of what it lost in February and March. Its 5% pullback since that time creates a great opportunity to pick it up for a lower price.
Chris thinks it has about a 25% to 30% upside potential through the end of the year. That would take it back to where it traded in February, ahead of the market smash. But we can do better by adding a little leverage with an options trade.
Remember, options have lower up-front costs, so you risk less and can still look for triple-digit gains. Chris thinks that this call option can give you a 100% gain:
Buy to open EXPE Jan. 15, 2021 $100 call (EXPE210115C00100000) using a limit order of $14.
This option is near the money, meaning its strike price is very close to the stock price right now. The benefit is that once the stock gets going and moving higher, the option will start to gain higher percentages. A one-point gain the stock, which closed Wednesday at $99.23, represents about 1% gain in your wallet.
But that could mean the option goes up by say, $0.50. That is still a 3.6% gain and more than triple the pace of the underlying stock. And as the January expiration gets closer, the option would start to move even faster, say, $0.75 cents for every dollar the stock moves. The return for that would be 5.5% for every point move in the stock, so you see how this trade pays you more as the stock approaches its upside target. It is one of those spirals you want to have.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with - all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.