Starwood Hotels & Resorts Worldwide Inc. (HOT) is a Connecticut based hotel and travel-lodging provider that operates well known international brands such as the Westin, W, Sheraton and Aloft hotel chains. At the time of this post (1:30PM CST), HOT is currently trading at 71.12, down 0.75% on the day. The stock is currently well within the lower portion of its 52 week trading range of 68.53-86.11, and has remained in a sharp downtrend for the greater part of 2015. HOT is scheduled to report earnings tomorrow, 2/10/2015 before the opening bell.
Over the last eight quarters of earnings data available, HOT has traded predominantly bearishly, moving lower on five out of eight sessions immediately following the EPS release. The average historical move during this same time period was approximately 3.5%. Currently the options market is pricing in a slightly larger than average move of around 5.33% by this Friday’s weekly options expiration, which would imply a directional move of about $3.80 in the price of the underlying stock over the course of the next four trading days. HOT remains in bearish territory on the daily chart as mentioned above, and the stock is well under the downward sloping Ichimoku cloud and all relevant moving averages as well, further solidifying the bearish case for this name. In conjunction with the stock’s propensity to sell off following earnings, I am currently leaning bearish HOT and will be looking to establish a short position going into the close of trading today.
Potential Trade: Buying the HOT Feb 70-65 Put Spreads for $1.00
Risk: $100 per 1 lot
Reward: $400 per 1 lot
Breakeven: $69.00