Options Corner: Why Expedia Could Be Setting Up For An Earnings Surprise Next Week

While Wall Street analysts' assessment of a publicly traded enterprise shouldn't be considered the absolute truth, their collective voices and influence certainly force investors to pause for thought. That's the present situation travel technology firm Expedia Group Inc EXPE finds itself in, ahead of next Thursday's first-quarter earnings disclosure.

Not surprisingly, several analysts have weighed in on the matter, with many maintaining a Neutral or Equal-Weight rating. Even more telling, on April 28, experts at UBS and Piper Sandler reduced their price target on EXPE stock, with the former dropping expectations to $170 from $194, and the latter lowering it to $174 from $210. Also, on April 17, Morgan Stanley reduced its price target to $150 from $190.

During the midweek session, investors learned that the U.S. economy contracted in the first quarter of this year, representing the first negative growth reading since the second quarter of 2022. Naturally, the key catalyst underpinning the latest data was President Donald Trump's tariffs, which sent shockwaves through multiple sectors.

Despite the ominous signals, smart money — as reflected by unusual options activity — apparently sees a much more positive outcome. Through sweep transactions (which are effectively institutional market orders emphasizing speed over other concerns), traders on a net basis either sold puts or put credit spreads.

To be sure, the transactions are mostly credit based, which means traders are underwriting the risk that a desired outcome on the debit side will not materialize. That's not a directly bullish thesis, per se. However, the risk of eating big losses either through the assignment of naked puts or the tail risk of rotten credit spreads makes deployment of such strategies irrational if one believes EXPE stock will plunge.

Using The Russian Philosophy Of Analytics To Decipher EXPE Stock

In many ways, the Russians laid the groundwork for modern probability theory. During the era of the Soviet Union, a sense of simple pragmatism set the tone and application for the discipline. In part, the underlying simplicity stemmed from innovation out of necessity. Soviet mathematicians often worked under resource-constrained environments, leading to axiomatic yet utilitarian deductions.

Stated differently, the Russian philosophy of analytics tends to focus on root issues: events, transitions and repeatable behaviors. Such an approach offers powerful applications to modern equity market dynamics, particularly because traders face two vexing dilemmas: the market is non-linear and an open system.

Basically, even a semblance of predictability can never be fully assumed, as catalysts from outside the system can derail a well-crafted thesis in a nanosecond. Therefore, a stock forecasting model must, in a sense, be too stupid to fail — much like the Kalashnikov rifle. It's old, it's ugly, but it works.

In the same vein, applying these principles to the demand profile of EXPE stock reveals more than what price alone can explain. Specifically, in the past 10 weeks, EXPE printed a "3-7" sequence: three weeks of upside interspersed with seven weeks of downside, with a negative trajectory across the period. This sequence is rare, having only flashed 16 times in the trailing decade.

Notably, whenever this pattern materializes, the chances of upside in the following week stand at 75%. Further, there has only been one case of a 2-8 sequence in the past 10 years, meaning that historically, long negative streaks generally signal an incoming sentiment reversal.

Adding to the optimism, the last time the 3-7 sequence flashed was roughly one year ago. Over the next 30 weeks, EXPE stock printed three 7-3 sequences in succession, with the bulls reasserting control.

Plotting A Bold Options Strategy For EXPE Stock

For the next 10 weeks, assuming that the positive pathway materializes, EXPE stock should be on course to reach a median price of $163.58, based on historical trends following the printing of the 3-7 sequence. Otherwise, if the pessimists win out, the median downside risk could land at around $154.90 about two months from now.

However, as an options trade, betting on a positive outcome for next week's earnings report would likely be on the speculators' watch list. With this in mind, aggressive traders may consider the 162.50/167.50 bull call spread expiring May 9. This transaction involves buying the $162.50 call and simultaneously selling the $167.50 call, for a net debit paid of $265.

Should EXPE stock rise through the short strike price of $167.50, at expiration, the trader would receive a maximum reward of $235, a payout of nearly 89%.

What makes this idea attractive is that fundamentally, the bad news could already be priced into the security. Investors have already digested several unpleasant news items. Therefore, a positive result — or even an optimistically framed outlook — can help drive sentiment northward.

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