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Calls Active on MGM Resorts International (MGM) Ahead of Earnings

May-dated calls were a popular choice on MGM

by 4/26/2013 10:45 AM
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Front-month call volume surged on MGM Resorts International (NYSE:MGM) on Thursday, with the stock's May 14 strike emerging as the most active option. No fewer than 8,219 contracts changed hands here, nearly rivaling MGM's total average daily call volume of about 10,000 contracts. Almost two-thirds of those May 14 calls crossed the tape at the ask price -- indicating they were purchased -- and open interest jumped overnight by 4,794 contracts. Based on this data, it's a safe bet that traders were buying to open new calls on MGM yesterday.

The day's bullishly biased option volume continued a growing trend for the casino operator. During the past 10 sessions, speculators have bought to open 6.60 calls for every put on MGM, according to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 89% of other such readings taken during the past year, pointing to a healthier-than-usual appetite for calls over puts in recent weeks.

Returning to those May 14 calls, they traded Thursday at a volume-weighted average price (VWAP) of $0.36. All other things being equal, these call buyers will begin to profit if MGM rallies above breakeven at $14.36 (strike price plus VWAP) prior to May expiration. With the stock currently sitting at $13.50, option bulls are betting on a bounce of more than 6.4% within the next three weeks.

The sudden influx of long calls could be related to the company's upcoming earnings report. MGM Resorts International is scheduled to reveal its first-quarter results before the market opens next Thursday, May 2. Analysts, on average, are expecting MGM to report a loss of 10 cents per share on $2.36 billion in revenue. The firm has a spotty record on the earnings front; in its last four quarterly reports, MGM has missed analysts' bottom-line estimates on two occasions, and surpassed the consensus forecast two other times.


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