When it comes to gauging the health of the consumer economy, multinational hospitality stalwart Hilton (HLT) represents a viable candidate. It’s a luxury hotel geared toward higher-income consumers along with business travelers. While that’s admittedly a narrow demographic, the strong performance of HLT stock suggests that many individuals and entities are still opening their wallets for premium-level services.
Let’s face it – Hilton under certain contexts is similar to exclusive Swiss watch brands. At the heart of it, there’s no practical reason to spend an exponential amount of money for an elite timepiece over a common one; they both tell the time. However, the willingness to spend a high premium for the more luxurious offering is a strong indicator of broader sentiment.
Therefore, HLT stock may be the one idea to watch.
Yes, the usual suspects attract most of the spotlight, particularly technology enterprises like Nvidia (NVDA). However, Nvidia and its ilk are tied to innovations that potentially could accelerate productivity. An accretive reason exists for their stunning rise. But HLT stock? In some sense, there’s no rational reason why it should accelerate.
A bed is a bed is a bed. Some beds are obviously more comfortable than others. But if it gets the job done at a cheap cost, why bother spending the extra money? The answer: because they want to.
In Hilton’s fourth-quarter earnings report, the company earnings per share of $1.68, beating out the consensus target of $1.57. As well, revenue landed at $2.61 billion, matching analysts’ estimates and rising above Q4 2022’s print of $2.44 billion.
All in all, it was a good day at the office. Further, higher-than-normal derivatives market activity suggests that the smart money believes the good times will continue for HLT stock.
Unusual Options Point to an Intriguing Takeaway for HLT Stock
Following the closing bell last week, HLT stock ranked among the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume clocked in at 28,866 contracts against open interest of 63,254 contracts. Relative to the trailing one-month average metric, Friday’s volume represented a 1,026.7% spike.
Breaking down the transactions, call volume reached 28,436 contracts against put volume of only 430 contracts. This pairing yielded a put/call volume ratio of 0.02, on paper dramatically favoring the bulls. However, this ratio can sometimes be misleading because of the myriad ways that derivative contracts – whether they be puts or calls – can be deployed.
To understand the deeper context, Barchart provides an options flow screener which filters exclusively for big block transactions likely made by institutions. Through this screener, we can make a few key observations:
- The number of big block calls and puts are the same: eight for each.
- Among the puts, most of them are for the expiration date of April 19 of this year.
- In terms of calls, almost all of them expire on Jan. 17, 2025.
Also, it’s worth pointing out that Barchart allows its members and users to filter options flow data by trade sentiment. Looking exclusively at bearish sentiment, we get the following transactions:
- Volume of 79 contracts of the JAN 17 ’24 185.00 Put.
- Volume of 121 contracts of the APR 19 ’24 210.00 Call.
- Volume of 23 contracts of the MAR 15 ’24 210.00 Put.
- Volume of 70 contracts of the MAR 15 ’24 210.00 Call.
In terms of immediate risks, there may be concerns that HLT stock may not move past the $210 level. Further out, investors may fear that Hilton shares may correct down to the $185 price point.
Still, I’m most intrigued by the neutral sentiment transactions. Specifically, there are three transactions that blew the doors off the other trades in terms of total premiums.
- Volume of 13,000 contracts of the APR 19 ’24 175.00 Call, with a premium of $40.69 million.
- Volume of 15,000 contracts of the JUN 21 ’24 185.00 Call, with a premium of $23.04 million.
Both of these transactions occurred on March 8 in the afternoon – well after the robust jobs report came in. I’ve got my doubts that these are institutional players selling calls at such a low strike price relative to Friday’s close of $205.71.
How to Trade Hilton
So long as the economy keeps rolling, it’s difficult to justify betting against HLT stock. At the same time, its longer-term investment proposition has been hampered (ironically) by its strong performance. Up more than 44% in the past 52 weeks and with a forward dividend yield of 0.29%, it’s not exactly a tempting proposition.
However, it could be an interesting idea for short-term trading. Here, investors should lean on Barchart’s Trader’s Cheat Sheet. Notably, technical resistance gets quite strong at $209.50. Therefore, an opportunity may exist with the APR 19 ’24 210.00 Call.
Per Barchart’s options pricing data, this contract’s bid-ask spread as represented by the midpoint price sits at 4.89%. Also, volume on Friday jumped to 149 contracts, indicating rising interest – especially compared to the other out-the-money options for this expiration date.
Fundamentally, the justification for the bullish trade comes down to this: we don’t know what’s going to happen in the far-out future but for now, don’t fight the tape.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
