Expedia (EXPE) should see improving margins

Expedia Inc. (NASDAQ: EXPE) shares are trading relatively flat today even though an analyst at Thomas Weisel Partners said in a note to investors that online travel sites like EXPE and Orbitz (NYSE: OWW) have quietly boosted booking fees for flights on major airlines, which is likely to improve margins at the online travel companies. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on EXPE.

After hitting a one-year high of $35.28 in October, the stock hit a one-year low of $20.18 in March. EXPE opened this morning at $24.85. So far today the stock has hit a low of $24.85 and a high of $25.38. As of 12:15, EXPE is trading at $25.17, up 0.04 (0.2%). The chart for EXPE looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just three and a half months as long as EXPE is above $20 at July expiration. Expedia would have to fall by more than 20% before we would start to lose money. Learn more about this type of trade here.

EXPE hasn't been below at all in the past year and has shown support around $21 recently. This trade could be risky if the company's earnings (due out in early May) disappoint, but even if that happens, that position could be protected by support the stock might find just above $20, where it bottomed out a few weeks ago.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in EXPE or OWW.