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Caesars Entertainment Corp (CZR) Traders Bet On an Extended Rally

Caesars Entertainment Corp's April 20 call is being bought to open today

by 4/9/2014 11:31 AM
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Caesars Entertainment Corp (NASDAQ:CZR) call players have been active of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the past 10 sessions, in fact, more than 21 calls have been bought to open on these exchanges for each put. What's more, the resulting call/put volume ratio of 21.20 ranks in the 98th percentile of its annual range, meaning long calls have been initiated over long puts with more rapidity just 2% of the time within the past year.

It's no exception today, either, with call volume running at 27 times the intraday average. Seven of the 10 most active strikes are calls that expire within the next three months. Against this increased demand for short-term options, CZR's 30-day at-the-money implied volatility (IV) has shot 12.6% higher to 63.7% -- its loftiest perch since early December.

The most sought-after position today is CZR's April 20 call, where 5,662 contracts have changed hands. The majority of these calls have traded at the ask price, IV is up 18.1 percentage points, and volume handily outstrips open interest, suggesting buy-to-open activity. Although CZR was trading north of this round-number mark -- which roughly coincides with the equity's 200-day moving average -- as recently as March 27, delta on the call is docked at 0.39.

Technically speaking, CZR has been in a downward spiral since hitting a record high of $26.74 in late February, with the shares off about 28% to $19.17. However, this negative price action has pulled the stock into oversold territory, as evidenced by its Relative Strength Index (RSI) of 20.

As such, the stock has taken a strong bounce off of its 320-day moving average and powered 8% higher today, despite yesterday's downgrade at Standard & Poor's. Considering a staggering 69% of Caesars Entertainment Corp's (NASDAQ:CZR) float is sold short, a portion of the recent call buying -- particularly at out-of-the-money strikes -- could be at the hands of shorts hedging against an extended bounce.


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