Worldwide leisure company Starwood Hotels & Resorts Worldwide, Inc. (HOT 27.73 NYSE) has smoked the competition this year, as the shares have skyrocketed nearly 70% since the beginning of 2009. The security recently broke above the $30 level, which served as resistance in late July, but may now act as a layer of support going forward. The shares also toppled former resistance at their 80-week moving average. Meanwhile, there is heavy out-of-the-money put open interest in the September options series. An unwinding of this pessimism could provide a tailwind. Additional buying pressure may come from short sellers, as nearly 16% of Starwood’s float has been sold short. A continuation of the equity’s strong price action could spark a short-covering rally. Elsewhere, we find that upgrades are a possibility, as only three of the 16 analysts following Starwood rate it a ‘buy’ or better. Any upgrades from this group could win over more of the bears. Recommendation: Buy the January 2010 25 call (HOTAE).
Bernard G. Schaeffer, Option Advisor
