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Las Vegas Sands Corp. (LVS) Option Buyers Bet On Red

Are Las Vegas Sands Corp. shareholders picking up options insurance?

by 5/7/2014 2:12 PM
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Las Vegas Sands Corp. (NYSE:LVS) is 2.3% lower at $77.13, as traders weigh weaker-than-expected services-sector data out of China, and what some analysts are calling a softer-than-usual Golden Week for Macau casinos. Against this backdrop, the options crowd is rolling the dice on more downside for LVS, with intraday put volume running at twice the normal rate.

Although demand for short-term options is on the rise -- the security's 30-day at-the-money implied volatility (IV) is 9.3% higher at 33.7% -- the most active option expires in December. Specifically, the out-of-the-money (OOTM) December 55 put has seen roughly 6,300 contracts cross the tape, primarily at the ask price. IV is trending higher at the strike, and volume has surpassed open interest, hinting at buy-to-open activity.

By purchasing the OOTM puts to open, the buyers have one of two motives: to profit from a steep plunge for LVS over the next several months, or to hedge against a significant downturn. In the case of the former, the "vanilla" bears will make money if LVS is sitting south of breakeven at $53.58 (strike minus the volume-weighted average price of $1.42) -- territory not charted since July -- when December options expire. In the case of the latter, the traders are looking to "insure" their LVS shares by locking in an acceptable price at which to unload their stake ($55 per share), should the equity extend its retreat beyond the strike. In either case, the maximum risk is limited to the initial premium paid for the puts.

Whatever the objective, today's preference for puts merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where Las Vegas Sands Corp. (NYSE:LVS) has racked up a 10-day put/call volume ratio of 1.48. This ratio stands higher than all comparable readings from the past year, implying that option buyers haven't picked up LVS puts over calls at a faster rate during the past 12 months.


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