Wednesday, June 9, 2010

Greekonomics 103.2 – Option Value Redux

Earlier I had posted about incorrect attribution of option value to frequent flyer miles. However, I do have a good example of option value for you through the Starwood Preferred Guest program. Starwood allows you to book room awards with points, which you typically can cancel without penalty up to 24 hours beforehand. Therefore, you can hold a room with points and wait to see if you can get a cheap cash room rate up to 24 hours before your checkin time. This is essentially a free option to hold rooms with points. The only cost is that you can’t use the points holding the room. But here is where SPG helps you out again. You can hold those rooms with cash and points, meaning that you don’t need that many points to hold a room. I’ve found this to be especially helpful when I have booked a trip far in advance with points and am earning promotional free nights. I can hold the room with the points, and then contact SPG to replace the “points” room night with the “promo” room nights. I just did this at the Westin Swan in Orlando. I had originally booked 5 cash and points nights for 4000 points and $60 per night (total outlay 20,000 points and $300). However, I just earned three free nights with the current SPG promo, so I replaced those 3 nights and then my total outlay was only 2 nights at 10,000 pts per night and no cash (savings of $300). Unfortunately, the cash and points option was no longer available, as I would have preferred $120 and 8000 points. However, my alternative cost me no incremental points versus my first option, so it was definitely a winner.

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