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Option traders have taken note of the fact that MGM Resorts International (NYSE:MGM - 11.68) has outpaced the broader S&P 500 Index (SPX) by more than 13 percentage points over the last two months, and have been scooping up bullish bets with some rapidity of late. During the course of the past 50 trading sessions, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than four calls for every put. This call/put volume ratio of 4.02 ranks just 1 percentage point from a 52-week peak, suggesting calls have been accumulated over puts at a near annual-high clip in recent months.
It seems that today's modest pullback has some traders on edge, with puts emerging as the options of choice. By the numbers, roughly 7,000 put contracts have changed hands so far, compared to fewer than 5,600 calls. Bearish bettors are circling around MGM's March 10 put, which is the most actively traded strike thus far. Of the roughly 3,900 contracts that have traded, 98% have gone off at the ask price, and implied volatility has ticked 1.2 percentage points higher, indicating the initiation of new bearish positions.
By buying these out-of-the-money puts to open, traders expect MGM to fall below the $10 mark by March expiration. More specifically, the stock needs to land below $9.73 (the strike minus the volume-weighted average price [VWAP] of $0.27) by March 15 -- when the options expire -- in order for these bearish bets to be profitable. This breakeven level represents a steep 16.7% drop from the stock's current price.
Technically, the shares have added a respectable 12% in 2012. As touched upon, the stock has been in a solid uptrend in recent months. In addition to outpacing the SPX, the equity has bounced nearly 28% off its most recent low of $9.15, which it tagged on Nov. 14. What's more, MGM continues to find a foothold atop its 10-day moving average, which has served as support since late November.
In light of this, today's attention toward long puts could simply represent shareholders protecting their paper profits against any additional downside over the next three months. It should be noted that the stock's Relative Strength Index (RSI) of 69 is sitting just on the outskirts of overbought territory, suggesting a near-term consolidation may have been in the works.