MGM Resorts Options (MGM): Unusual Trading Activity

| July 23, 2012 | 0 Comments

MGM OptionsOptions in gambling company MGM Resorts (MGM) lit up our screens before the closing bell on Friday.

It wasn’t more than a month ago when a trader came in and bought 10,000 August $14 call options on MGM.

Now the bulls are at it again.

On Friday, we noticed another huge purchase of call options on MGM.  I’ll get into the details in just a moment.

But first a few words about the stock’s performance…

After its last earnings report, MGM rose above $14 a share.  But the rally didn’t last long.  The stock has since plunged with the overall market down to around $9.75 a share.

However, MGM rebounded sharply during the middle part of last week.  I think this bullish market action is what sparked last week’s long term bet on this casino operator. 

So, getting back to the trade…

A few minutes before the closing bell Friday, our tracking system picked up a block trade in MGM call options.  A trader snapped up 11,250 MGM January 2014 $17 calls. at $0.63 a piece. 

The critical point here is that the entire transaction was completed in a single print.  In other words, the calls were all purchased at the same time.

There can be no doubt this trader is very bullish on MGM. 

Now, even though I consider this trade as nothing more than a lottery ticket, I believe it’s a bet worth taking.  You see, it’s an inexpensive trade with huge upside potential!

But what’s so special about MGM?

If you don’t already know, MGM Resorts is the largest gaming and hotel company on the Las Vegas Strip.  They have approximately 40,000 guest rooms and suites, representing about 30% of all guest rooms on the market.

And MGM owns a lot more than just the MGM Resort. 

Their other properties include the Bellagio, Mandalay Bay, Mirage, Luxor, and New York-New York.  What’s more, MGM has a pair of 50% ownership stakes in the new $9.2 billion City Center and the $1.25 billion MGM Macau casino resort in Macau, China.

Now, getting back to today’s unusual call buying…

As I said earlier, this trader is trying to take advantage of expected increases in MGM’s stock following the next six earnings reports.  He also probably believes a few other factors will act as positive catalysts for the shares. 

First off, MGM is well-positioned to benefit from a strong rebound in the Las Vegas Strip gaming and lodging market.  The ongoing recovery could certainly help MGM beat analyst estimates for the second quarter.

Also, increased revenue would enable the company to leverage its significant fixed costs and substantially increase EBITDA margins… another potential contributor to a higher stock price.

Lastly, even though many economists think a slowdown in China is worse than it appears, I don’t think investors are giving MGM enough credit for its fast-growing MGM China division. 

Gambling revenues for the six casino operators in Macau hit $3.3 billion in May, the second highest monthly total on record.

Bottom line…

MGM has a lot going for it.  And while I believe this large call position may be stretch, I like it and wouldn’t hesitate to put on the same trade.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber


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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.