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Option Brief: MGM Resorts International (NYSE:MGM) shares are down 6% to $19.09 today, despite posting a third-quarter earnings beat this morning. Option traders are reacting on both sides of the fence, as total volume is outpacing the intraday average by more than a five-fold margin. The most active option by far is the January 2015 22-strike call.
Volume at that strike is just over 20,100 contracts. Although the figure does not outstrip current open interest levels, implied volatility is on the rise, suggesting the creation of new positions. On top of that, 97% of the calls traded at the ask price, conveying they were purchased. This buy-to-open activity is confirmed by information from the International Securities Exchange (ISE), which is also where the three largest blocks at the strike -- ranging from 4,000 to 7,636 contracts -- changed hands.
By purchasing the calls to open, today's speculators expect the casino operator to rebound above $22 by options expiration, about 15 months from now. If the stock stops short of that mark, stagnates, or declines, however, the traders will part with 100% of their initial premium paid. Historically speaking, MGM Resorts International (NYSE:MGM) has not ventured north of the strike price since October 2008.