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Option Trends: MGM Resorts International and International Game Technology

Put buyers are targeting MGM, while IGT has been a favorite among call speculators

by 3/13/2014 11:29:22 AM
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Options players are choosing sides on gaming concerns MGM Resorts International (NYSE:MGM) and International Game Technology (NYSE:IGT), per data from the major options exchanges. Traders have recently scooped up bearish bets on MGM, and executed bullish plays on IGT. Here's a look at what's been happening in the options pits for these two major casino names.

On the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), traders have bought to open 7,693 puts on MGM during the past five sessions, compared to just 3,886 calls. The resulting five-day put/call volume ratio of 1.98 indicates a recent preference for bearish bets over bullish.

When including data from the NASDAQ OMX PHLX (PHLX) -- and broadening the scope to look at two weeks of activity -- the 10-day put/call volume ratio comes in at 0.65, which is 8 percentage points away from a bearish annual peak. In short, put buying (relative to call buying) has rarely been so popular during the past year.

Daily chart of IGT since August 2013

Given the stock's triumphant performance on the charts, however, it is possible some of this put buying (particularly at out-of-the-money strikes) is the work of shareholders looking to protect paper profits. MGM shares have gained nearly 120% over the last 12 months, and are up 15% in 2014 alone. On a relative-strength basis, MGM has outperformed the broader S&P 500 Index (SPX) by almost 21 percentage points during the last three months. At last check, MGM was 0.5% higher today at $27.08.

IGT, meanwhile, has lagged the SPX by more than 15 percentage points during the same three-month time frame. The stock suffered an earnings-related bear gap of nearly 15% on Jan. 24, and is still trying to recover its losses from that session. Overhead, meanwhile, is the equity's descending 60-day moving average, which contained a recent rally attempt in the shares. Today, IGT is off 0.6% at $15.39.

Despite its technical struggles, IGT has been a favorite among call buyers of late. During the last five days at the ISE and CBOE, speculators have scooped up 3,186 calls and just 58 puts, for a staggering five-day call/put volume ratio of 54.98. Meanwhile, the 10-day ISE/CBOE/PHLX call/put volume ratio of 25.10 ranks higher than 85% of comparable readings taken during the past year. Should these bullish options players begin to switch sides, it could result in additional contrarian headwinds for the stock.


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