Want to take a trip on the short side? Here’s a potential trade on Expedia (EXPE). (July 26, 2018)
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We are looking at Expedia ( NASDAQ: EXPE ) here and this is why: This chart does not encompass the price action, this does. The company reported really, really strong earnings, like blowout earnings, and the stock is up almost 10 percent.
Now, as a general rule, and it is a good rule to have, don’t buy stocks that gap up 10 percent; just like you don’t want to sell stocks that gap down 10 percent; typically you wind up on the wrong side of the trade. That is kind of a bummer; right? Well then, what would be the right thing to do? The right thing to do is, if you are a trader, somebody who trades the swings of order flow, then when a stock gaps down 10 percent, that is a stock that you want to buy because it is probably going to snap back up. If a stock gaps up 10 percent you probably want to sell because the stock is probably going to snap down, fall lower. It is like the rubber band thing; right? I think that is really what we have got going on for Expedia ( NASDAQ: EXPE ).
I hadn’t planned on going into this but here is an example of this: Facebook ( NASDAQ: FB ); the stock absolutely got crushed. It gapped down basically 20 percent. So was it right to say, “Oh my gosh! It’s down huge, I have to sell this stock.” No; if you had sold this stock at the open you would have saved yourself about $1.50. In other words, if you sold it at the open the stock fell about another $1.50 before it ultimately stabilized. So selling or shorting a stock that is down this much didn’t really help.
Now, on the upside, buying Facebook ( NASDAQ: FB ) didn’t really didn’t do much for you either and therein lies the issue with respect to Facebook ( NASDAQ: FB ). This is the price range, 181.75, this is where this stock is trading. The point is, and then we will get back to Expedia ( NASDAQ: EXPE ), the point is if a stock gaps down this much this is really what you are expecting. You are NOT expecting it to open up and then continue lower. It could happen and seemed for a while like it might be what would happen with Facebook ( NASDAQ: FB ). What we are seeing here is that $175.00 is THE price level where traders just really seem to want to own Facebook ( NASDAQ: FB ).
Let’s look for a similar level here with Expedia ( NASDAQ: EXPE ). Expedia ( NASDAQ: EXPE ) is UP big after hours; $144.00 is the high, the after-hours high, this is the high. So this is how I would trade this stock: If the stock opens lower here tomorrow, sorry this is a trade that didn’t happen. But if the stock pushes back up here at all the closer you can short this stock to $143.00, 143.80 is the high, this is after market of course. The closest you can short this stock to 143.80, the better. And this is why (I am just going to go ahead and set an alert for me): The reason is, because if the stock starts pushing above 143.80 then this is a short squeeze. This is a short squeeze in progress and you are probably going to get an even higher price. You can see where the stock is trading now.
If you are shorting this stock you want to get it as close to this as you can and then you will immediately, as soon as you short, you will set your buy stop right up here. You set your buy stop right up here; so the risk that you have is between where you short the stock and where you would get stopped out. And that would be, say from here you are risking about 3.5 percent by shorting right here.
The idea is this: You want to know exactly how much your risk is. Know exactly where you would be getting out of a losing trade if it is going against you. When you know that, that is how you can get to a point where you are shorting these stocks that have screamed, you are shorting them with confidence; you just go, “Okay, I’ll just put on my short; Boom! I’m short. I put in my stop; Bam! There’s my stop. Okay, what else is going on? What’s happening with Amazon? Do I buy that sucker or do I short that too?” That is how you are going to trade Expedia ( NASDAQ: EXPE ) tomorrow.
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