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Casino operator Las Vegas Sands Corp. (NYSE:LVS) is up more than 50% year-over-year. The stock has pulled back since peaking at $88.28 on March 7, but recently found a foothold in the form of its 50-week moving average -- a trendline that has played a key role as both support and resistance over the past two years, and now appears to be acting as a springboard to launch LVS on its next leg higher.
In Tuesday's trading, one long-term options trader bet on a continuation of the equity's uptrend by opening a ratio call spread at the January 2015 80 and 90 strikes. The speculator bought to open 250 January 80 calls, and simultaneously sold to open 500 January 90 calls -- essentially, betting that LVS will rally as high as $90 by the time January-dated options expire.
The net debit on this play was $1.41, which is the most the trader stands to lose if LVS settles at or below $80 upon January expiration. Those January 80 calls will be profitable if the stock is trading above breakeven at $81.41 at expiration, and gains are limited to the difference between the two strikes, less the net debit -- in this case, $8.59.
However, since two calls were sold for every one purchased call, the ratio spread strategist faces theoretically unlimited losses if LVS should rally north of $90 prior to expiration. The trade-off for this heightened risk profile is the lower cost of entry; had the trader simply purchased the January 80 calls on their own, the net debit would be $4.62.
At last check, LVS is fractionally higher at $78.11. The stock gained more than 2% Tuesday, despite a report showing a 3.7% year-over-year decline in Macau gambling revenue during the month of June -- pointing to deep-seated technical strength in shares of Las Vegas Sands Corp.