Put Option Open Alert: Hilton Worldwide Holdings

By Jim Pearce • June 12, 2018

TRADE INSTRUCTIONS

Date: June 12, 2018
Name: Hilton Worldwide Holdings
Symbol (Exchange): HLT (NYSE)
Type: Long put option to open
Expiration: October 19, 2018
Strike Price: 85.00
Limit: Buy below $4.75
Symbol: HLT181019P00085000

TRADE RATIONALE

Hilton has enjoyed a nice run up the charts during the past year, but by every objective measure used by our Rapid Profits Matrix it has become overvalued and is due for a fall. It earns the lowest possible score of ‘0’ from my IDEAL Stock Rating System due its low dividend yield, declining net operating cash flow and high FPER (forward price to earnings ratio).

In fact, its FPER multiple of 26 times next year’s earnings is 20% higher than its trailing PER, suggesting Hilton is going to experience a rapid rise in profits. However, escalating trade tensions between the U.S. and most of its major trading partners could soon put a damper on the type of business travel that has become Hilton’s stock in trade.

Hilton is opening new hotels at an aggressive pace despite increasing competition from online travel services that are cutting into its profit margins. So far, the market does not appear to be pricing any margin compression into Hilton’s future earnings projections. However, that may have been masked by a massive secondary offering last month executed off the exchange that resulted in nearly 17 million shares changing hands without disturbing the bid/ask equilibrium as a public secondary offering would have done.

In addition, technical indicators suggest Hilton is close to a market top. It is currently trading within a dollar of its upper Bollinger Band, and its RSI (relative strength index) is at 59, close to crossing over into extended territory. I don’t expect HLT to crash hard, but I believe it will retest its recent low price of $75 in which case this option could double in value.

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Rick

06/12/18 ‐ 2:52pm ET June 12, 2018 at 2:52pm ET

Bought the Oct $85 Put at $4.40.

Stanley

06/12/18 ‐ 3:02pm ET June 12, 2018 at 3:02pm ET

HLT filled for $4.46 @ Fidelity

Asjad Shamim

06/12/18 ‐ 3:10pm ET June 12, 2018 at 3:10pm ET

HLT filled @ 5.86 PUT with Strike Price of 87.50

Janis Bell

06/12/18 ‐ 3:19pm ET June 12, 2018 at 3:19pm ET

Bought my first put at $4.45. Now to avoid getting the stock on Oct 19, how do I get rid of it when it goes up? (as we hope it will!)

Jim Pearce

06/12/18 ‐ 3:25pm ET June 12, 2018 at 3:25pm ET

When you buy a put, there is no chance that you will end up having to buy the stock (that can only happen if you short/sell the put as an opening transaction, such as Jim Fink does in Personal Finance). By October 19th, this put will either have some amount of intrinsic value that will automatically be paid to your brokerage account, or it will expire worthless (which, of course, we hope doesn’t happen). At any time before it expires on October 19th, this put can be sold in the market for whatever it is trading for at that time.

Janis Bell

06/12/18 ‐ 3:30pm ET June 12, 2018 at 3:30pm ET

Thanks for clarifying.

MarkS

06/12/18 ‐ 3:36pm ET June 12, 2018 at 3:36pm ET

Buying a put means you have the right to sell the stock between now and expiration date. So you can’t end up owning the stock. (If you SELL a put, then you can end up with the stock if the buyer of the put option exercises it.) Any time between now and Oct 19, you can Sell to Close your put options. If HLT declines, as we hope it does, then the put option will increase in value and that’s how we make money on this position.

Victor

06/12/18 ‐ 3:32pm ET June 12, 2018 at 3:32pm ET

Filled @ 4.40 on TASTY

JL

06/12/18 ‐ 3:34pm ET June 12, 2018 at 3:34pm ET

HLT filled at $4.43, Etrade.

Jeff L.

06/12/18 ‐ 3:43pm ET June 12, 2018 at 3:43pm ET

HLT filled 4.50 ThinkOrSwim

Jeff L.

06/12/18 ‐ 3:48pm ET June 12, 2018 at 3:48pm ET

I bought 6 “PUTS” on TOS the calculation states a max profit of 48K are these calculations correct? I don’t expect pure 100% but I’m wondering if I should look at this calculation at all. I’ve been paying more attention to what I can lose.

Chee L.

06/12/18 ‐ 4:35pm ET June 12, 2018 at 4:35pm ET

Jeff, the calculations are correct, based on the stock price going to $0 for the theoretical max profit. However, that is unlikely to happen. You should calculate your target max profit based on where you see the stock price going within your planned timeframe. See the last sentence in the trade rationale for the target of this trade. Happy trading.

Jeff L.

06/12/18 ‐ 4:43pm ET June 12, 2018 at 4:43pm ET

Thanks, I see now that makes perfect sense. Thanks again for giving the rationale behind the trade it helps me understand the risk/reward.

Regards,

Mark L

06/12/18 ‐ 3:54pm ET June 12, 2018 at 3:54pm ET

I’m new to options and need a little guidance. My broker allows me to select either ‘buy’ or ‘sell’ a put at $85 on 10/19 but I’m not sure which is the correct choice for this trade. Thanks in advance for your help.

Chee L.

06/12/18 ‐ 4:22pm ET June 12, 2018 at 4:22pm ET

Mark, you can see the selection in the trade instruction.
Limit: Buy below $4.75

Mark L

06/12/18 ‐ 4:56pm ET June 12, 2018 at 4:56pm ET

I probably didn’t explain well. There are two columns – one has buy and sell, the other has call and put. I know to select put, but can’t I also buy the ‘sell’? Is it possible to sell a put I don’t own? I understand “long put option” but am not grasping “to open.”

Derek: Las Vegas, NV

06/12/18 ‐ 5:22pm ET June 12, 2018 at 5:22pm ET

Hi Mark,

You can buy to open and sell to open trades you don’t currently own.

You can buy to close and sell to close positions you’re already in.

So, in this case the instructions say:

Type: Long put option to open, which is the same as buy to open.

Here is a FREE website that you can use to learn options: http://www.optionseducation.org

Derek

Mark L

06/12/18 ‐ 6:04pm ET June 12, 2018 at 6:04pm ET

Awesome! Thanks Derek – much appreciated!

Benny K

06/12/18 ‐ 3:59pm ET June 12, 2018 at 3:59pm ET

In at $4.41 on Schwab.

Daniel Long

06/13/18 ‐ 1:30pm ET June 13, 2018 at 1:30pm ET

HLT put filled at 4.70.
DL

Jeffrey J

06/18/18 ‐ 3:28pm ET June 18, 2018 at 3:28pm ET

Filled today at $4.50 at TradeStation.

Michael E

06/19/18 ‐ 4:04pm ET June 19, 2018 at 4:04pm ET

HLT Put filled today at $4.70 on Fidelity

Jim Pearce

06/25/18 ‐ 9:53am ET June 25, 2018 at 9:53am ET

This morning, HLT traded below its lower Bollinger Band with an RSI below 40. The last time that happened, April 10, HLT bounced to its upper Bollinger Band over the following two weeks before dropping again. I bring this up for those folks who would rather close this trade out now with a certain ~40% gain rather than hang in there to see if we can the 100% gain I am shooting for. To be clear, I am leaving this position open in the SW portfolio for now and providing this guidance for more conservative traders that may not be aware of the technical aspects of this trade in the near term.

Dramatic License

06/25/18 ‐ 12:55pm ET June 25, 2018 at 12:55pm ET

Thanks, Jim. Appreciate this. I am getting out and maybe will get back in later. 🙂

Benny K

06/25/18 ‐ 3:25pm ET June 25, 2018 at 3:25pm ET

Thanks for the heads up Jim. Got out this afternoon with a 68% gain. May see if it responds as you mentioned and possibly jump back in. Great trade.

Jim Pearce

06/25/18 ‐ 3:41pm ET June 25, 2018 at 3:41pm ET

I’m glad to hear it, nothing wrong with booking a 68% profit in two weeks! 🙂

MarkS

06/28/18 ‐ 5:20pm ET June 28, 2018 at 5:20pm ET

STC @ $8.51 today +88%

Dave NYC

07/19/18 ‐ 11:25am ET July 19, 2018 at 11:25am ET

Jim, do you think we can jump back into this trade? HLT got close to our target price $75 and offered a decent gain. Now it is moving back to where we started in early June, around $83. Should we execute this trade again if the fundamentals have not changed much?

Jim Pearce

07/19/18 ‐ 1:04pm ET July 19, 2018 at 1:04pm ET

Hi Dave. HLT just bumped off its upper Bollinger Band near $82, so from a short-term perspective this should be a good time to repeat that trade. Lower Bollinger Band is now a little below $78. The fundamentals have not changed.

Dave NYC

07/19/18 ‐ 1:21pm ET July 19, 2018 at 1:21pm ET

Thanks Jim. I just filled HLT181019P @ $5.

Dave NYC

07/25/18 ‐ 12:10pm ET July 25, 2018 at 12:10pm ET

Jim, you are right again. I sold it yesterday @5.6, which is 12% gain in just a few days!

Benny K

07/25/18 ‐ 2:55pm ET July 25, 2018 at 2:55pm ET

Picked up the Oct. $85 Put on 7/19/18 for $4.90. Sold today @ $6.50 for a nice 30% gain in 6 days. Thanks Jim

Jim Pearce

07/26/18 ‐ 12:54pm ET July 26, 2018 at 12:54pm ET

Benny – You seem to have a knack for making money. Good work!

Benny K

07/26/18 ‐ 1:45pm ET July 26, 2018 at 1:45pm ET

Just following your good advice.

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