New Hotels Highlight a Potential Gain of 65%
In the news recently, we spotted an announcement that seemed mundane, but it drew our attention to an unusually attractive trading opportunity. Business Wire reported, Hyatt Hotels Corporation (NYSE:H) announced today that more than 20 new luxury hotels and resorts are expected to open worldwide by the end of 2020, boosting Hyatt’s luxury portfolio. The additions include new properties under the Park Hyatt, Andaz, Alila, Grand Hyatt, Miraval and The Unbound Collection by Hyatt brands.
As part of this global expansion, The Unbound Collection by Hyatt brand is seeing its strongest growth to date in Europe. The brand is known for an exceptional portfolio of true historic gems as well as contemporary properties with a fascinating past.
Each hotel within the collection provides one-of-a-kind experiences attracting independently minded travelers looking for the extraordinary.
Upcoming hotels include distinctive properties like Great Scotland Yard, the location of London’s former metropolitan police headquarters, expected to open December 9; and the majestic Hôtel du Palais Biarritz, the former imperial residence of Napoleon III, which is due to reopen in June 2020 after an extensive renovation.
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“With our growth acceleration in the luxury segment, we will have the opportunity to care for more travelers around the globe through a range of differentiated high-end experiences,” said Mark Vondrasek, chief commercial officer, Hyatt.
“We’re excited to expand into new markets and enhance the global footprint of our brands, giving our guests and members additional ways to connect with our luxury offerings in places where they want to be.”
Celebrating its 40th anniversary in 2020, the Park Hyatt brand is also a key contributor to Hyatt’s luxury portfolio growth, with five Park Hyatt hotels expected to open by 2020 in Doha, Qatar; Jakarta, Indonesia; Niseko, Japan; Suzhou, China; and Auckland, New Zealand.
With its world-renowned artwork, sophisticated design, and sought-after dining experiences – with several Michelin-starred restaurants, now totaling three in Europe – the brand caters to discerning travelers who appreciate understated luxury and an intimate, residential stay.
Throughout the decades, Park Hyatt hotels have delivered immersive experiences, creating a refined home away from home for guests.
“Across Europe, Africa, the Middle East, as well as Southwest Asia, luxury properties account for over a third (35 percent) of our portfolio,” said Peter Fulton, group president – EAME SWA, Hyatt.
“Europe in particular, with its unique and historic architecture, represents a natural home for The Unbound Collection by Hyatt brand, and as we expand with our lifestyle and independent brands, we are confident our new offerings will cater to high-end travelers who are seeking an unprecedented stay.”
Other announcements include the expansion of the Alila brand, which delivers world-class service and crafts rare and intimate experiences for its guests with three luxury resorts expected to open in Switzerland, Malaysia and Oman. In addition, six Andaz branded luxury lifestyle properties are due to open in Dubai, UAE; Prague, Czech Republic; Bali, Indonesia; Shenzhen and Xiamen in China; and Palm Springs, California, offering distinctively local experiences and creative design within open, barrier-free spaces.
The Grand Hyatt brand is also set to continue to steadily grow with new openings in Hefei and the Shenzhou Peninsula in China, Kuwait, Gurgaon in India, Jeju in South Korea, and Nashville, Tennessee, along with the first Grand Hyatt hotel in Al Khobar, Saudi Arabia.
Known for its bold and vibrant architecture and welcoming service, Hyatt’s largest luxury brand, Grand Hyatt, celebrates the iconic in small details and magnificent moments.
This news comes as the stock is in a short-term up trend.
The price is now near long-term resistance and a break could send the stock significantly higher.
A Trade for Short Term Bulls
As with the ownership of any stock, buying H could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for H
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For H, the January 17 options allow a trader to gain exposure to the stock.
A January 17 $80 call option can be bought for about $2.50 and the January 17 $85 call could be sold for about $0.62. This trade would cost $1.88 to open, or $188 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $188.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in H the maximum gain is $3.12 ($85 – $80= $5; $5 – $1.88 = $3.12). This represents $312 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $188 to open this trade.
That is a potential gain of about 65% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.