Stocks quoted in this article:
Option Brief: Call players once again targeted MGM Resorts International (NYSE:MGM) yesterday, sending volume to more than three times the expected daily pace. Against this increased demand, the equity's 30-day at-the-money implied volatility (IV) rose 4.8% to land at 31.9%. On the charts, MGM has climbed more than 89% over the past year, and a number of speculators on Thursday bet on an extended advance.
Near-term traders honed in on MGM's weekly 4/11 25.50-strike call, where 5,822 contracts -- including a multi-exchange sweep of 4,045 -- changed hands. The majority of these traded at the ask price, IV ticked higher, and most of the contracts translated into open interest overnight, collectively pointing to buy-to-open activity. All other factors being equal, breakeven at the close on Friday, April 11, is $25.78, or the strike plus the volume-weighted average price of $0.28. MGM was seen north of this mark as recently as last Tuesday.
Meanwhile, longer-term traders turned their attention to the June 33 call. Of the 6,135 contracts that traded here, 86% went off at the ask price. IV rose 2.5 percentage points on the day, and open interest added 5,971 positions overnight -- the most of any strike. In other words, it seems safe to assume that new bullish positions were purchased. With short interest accounting for a healthy 8.8% of the stock's available float, a portion of the call buying at this deep out-of-the-money strike could be a result of short sellers hedging against any additional upside. MGM could see some volatility following its quarterly earnings report, which is tentatively due out the week of April 28.
As touched upon above, MGM Resorts International (NYSE:MGM) has displayed strength on the charts for some time. More recently, the equity entered a brief period of consolidation after hitting a five-year peak of $28.75 earlier this month. However, MGM found a foothold atop its 80-day moving average, and according to Schaeffer's Senior Quantitative Analyst Rocky White, in the five other times this has occurred, MGM has posted a positive 21-day return 60% of the time. In today's session, the equity is headed higher, up 0.9% at last check to trade at $25.12.