Buying A Call Option On MGM Resorts $MGM
Buying A Call Option On MGM Resorts $MGM
Sometimes, a company is in need of a drastic change to get back on track. The thing is, no business can survive indefinitely without occasional change. Even the biggest businesses in the world have to adjust to meet the times.
Apple $AAPL has had to constantly evolve to stay on top. Even an oil giant like Exxon Mobil $XOM has had to look at industries beyond oil to ensure its future.
Of course, the same holds true for casino resort companies. Even gambling and hotel revenues aren’t always enough to guarantee the success of the business.
So what’s that mean for a company like MGM Resorts $MGM?
MGM is a popular casino resort operator. The company has 15 resorts in the US, a large resort in Macau, China, and several golf courses. Revenues are generated from gaming, hotels, dining, entertainment, and other related activities.
Currently, $MGM is trading at $21.81, down 8% on the year. That’s 26% from the 52-week low of $17.25, and 21% from the 52-week high of $27.64.
So is now the time to buy a call option on $MGM?
As a reminder, a call option makes money when the underlying stock goes up. Is $MGM due for a rebound?
For a more in-depth look at MGM, you can check here.
Here’s the deal…
An activist investor, Jonathan Litt, is pushing for a deal with MGM which could significantly unlock value in the company.
Basically, Litt believes the company should convert its properties into a real estate investment trust (REIT) and spin off its hotels in a separate company. The move is supposed to unlock the value of MGM’s real estate portfolio, which is heavily undervalued by the market.
The strategy would also help cut the company’s debt in half, as well as significantly boost the share price. Litt thinks the stock would be worth at least $33 with this decision, and possibly much more.
Here’s the chart of $MGM:
As you can see above, the stock jumped on news of the potential spin off. The shares shot through the 50-day moving average, but are still a long ways from the 52-week highs.
Now could be a great time to buy a $MGM call option.
Investors are obviously thrilled with the idea of a spin off and REIT. It certainly sounds like an excellent strategy. And, MGM management does seem to be amenable to the idea.
As such, buying a longer-term call is in order. The September 22 calls are trading just around $2. That’s gives you six months for the company to agree to this plan. If it seems like this deal is going to go through, the stock will soar well beyond $22.
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Call Or Put Options?
