Option players upped the stakes on casino kings MGM Resorts International (MGM) and Las Vegas Sands Corp. (LVS) on Tuesday, as both casinos saw accelerated option activity. However, the reasons for this spike in option volume vary. While LVS saw a jump in call activity ahead of its second-quarter earnings, MGM saw a surge in call volume after the casino announced plans to sell four new leases in Atlantic City, N.J. Read on for more on each stock's technical and sentiment backdrops.
Las Vegas Sands Corp. (LVS)
LVS reported this morning that its second-quarter earnings were $129.3 million, or 17 cents per share, after adjusting for items. Analysts were looking for a profit of 9 cents per share. Meanwhile, total revenue for the second quarter arrived at $1.59 billion -- up 51% from the year-ago period. LVS attributed the growth to strong performance by its Asian operations. In fact, LVS just opened a casino in Singapore in April with a $5.7 billion price tag, which reported earnings of $129.3 million.
Ahead of the casino's earnings report, option players seemed cautiously optimistic about LVS, as calls were traders' options of choice. Roughly 35,000 calls traded on Tuesday, well above the stock's expected single-session call volume of around 27,000 contracts.
The August 28 call was the day's most popular strike, with 5,304 contracts traded -- 66% at the ask price, suggesting they were purchased. Overnight, open interest at this strike increased substantially, pointing to the addition of fresh bullish positions.
However, traders also took a longer-term bullish approach to LVS. Late Tuesday morning, 400 December 30 calls changed hands at the ask price, while 400 December 35 calls traded at the bid price. In this long call spread, the strategist is looking for LVS to muscle above the $30 level, but stop right at, or just beneath, the $35 level by December expiration.
Tuesday's call volume was actually a bit unusual for LVS. The stock sports a 10-day International Securities Exchange (ISE) put/call volume ratio of 0.71, in the 80th percentile of its annual range, revealing that traders have rarely initiated puts at a faster clip. In the same vein, LVS' Schaeffer's put/call open interest ratio (SOIR) stands at 0.89, just 18 percentage points shy of an annual bearish peak.
Perhaps today's positive report will shake loose some of these bears, and help LVS resume its 2010 rally. The equity has been stuck in the $23-to-$27 region for the past few months, with the upper rail of this range proving to be a tough technical ceiling for LVS. The casino's 10-week and 20-week trendlines also complicated matters during this time, as LVS was stuck between the two for a few weeks.
Now perched atop this duo, around $25.65, LVS looks poised to bounce off support, as these intermediate-term trendlines have guided the stock to gains of 69% year-to-date. This morning's earnings report could cause skeptical traders to reconsider their bearish bets, and provide the stock a boost above short-term resistance at $27.
MGM Resorts International (MGM)
Meanwhile, MGM announced on Tuesday that it agreed to sell four long-term ground leases in Atlantic City, N.J., to Vornado Realty Trust and Geyser Holdings for the sum of $73 million.
Option players jumped on this news, with volume swelling to 76,000 contracts traded on Tuesday -- triple MGM's usual daily volume of around 25,000 contracts. Calls were wildly popular, with some 53,000 of these bullish bets changing hands.
The August 13 call was most popular on Tuesday, with 13,366 contracts crossing the tape -- half of which traded at the ask price, revealing they were likely bought. Overnight, open interest increased by no less than 5,100 contracts, suggesting that a portion of these calls were bought to open. With MGM trading around $11.11, it seems that some option traders are betting on the casino issue to conquer the $13 level over the next few weeks.
A few strikes lower, one trader made a bet that MGM would make a major move past its current perch at $11 level in the near term. Early Tuesday morning, 1,000 August 11 puts and 1,000 August 11 calls, both marked "spread," changed hands at their respective ask prices. By initiating a long straddle, this speculator is betting that MGM will swing significantly above, or below, the $11 level by August expiration.
In general, option players are actually quite bearish on MGM, as evidenced by the stock's Schaffer's put/call open interest ratio of 1.42, which reveals that put open interest comfortably outnumbers call open interest among options with less than three months until expiration. This ratio ranks in the 95th annual percentile, revealing that short-term traders have rarely been more skeptical toward MGM.
Elsewhere, short interest jumped 14.6% during the past month -- 7.9% in the past two weeks alone -- and now accounts for a hefty 34.2% of MGM's available float.
Quite frankly, MGM's performance on the charts lately merits such skepticism. In the past 60 sessions, MGM has taken a tumble, slipping beneath its 10-week and 20-week trendlines in the process. This duo has squelched the stock's progress since May 21.
However, in the past few weeks, MGM has staged a rally, and is currently waging war with its 10-week trendline. Regaining the support of this moving average could do wonders for MGM, as this trendline has acted as a springboard for the casino outfit in the past. In this event, the bearish holdouts could fold, creating a fresh wave of buying pressure to usher MGM higher.
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