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Traders Bet on MGM Resorts to Tackle Overhead Resistance

MGM's momentum could be stunted at the $13 mark

by 1/25/2013 1:44 PM
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Calls are trading at an accelerated clip on MGM Resorts International (NYSE:MGM - 12.95) today. At last check, around 9,800 calls have crossed the tape, representing a 27% mark-up to their expected intraday volume. MGM's February 13 call has emerged as one of the more active strikes thus far, with roughly 2,800 contracts traded. The majority of these have gone off at the ask price, and implied volatility was last seen 3.1 percentage points higher, pointing to the initiation of new positions.

By buying these near-the-money calls to open for a volume-weighted average price (VWAP) of $0.35, traders need MGM to muscle above breakeven at $13.35 (strike price plus VWAP) by February expiration, or 3% north of the stock's current perch, in order to profit. Should the security fail to topple this mark by the close on Friday, Feb. 15 -- when front-month options expire -- the most the traders have risked is the initial premium paid.

Meanwhile, the February 13 strike is seeing action on the put side of the aisle in today's session, as well. Shortly after 12:00 p.m. ET at the NASDAQ OMX PHLX (PHLX), one large block of 38,500 contracts crossed at MGM's February 13 put for $0.37, which is below the bid price. This large trade was tied with a short-stock position, according to Trade-Alert, making this a delta-neutral strategy, and therefore effectively insulated from any price changes in the stock.

Widening the scope reveals that MGM's February 13 call has been quite popular among option players in recent months. Since Dec. 26, speculators have bought to open more than 6,600 positions here, and the strike is now home to peak call open interest in the front-month series. To the dismay of today's call buyers, this level could serve as options-related resistance in the near term, as the more than 10,700 contracts that currently reside here begin to unwind over the next three weeks.

On the charts, the stock has added an impressive 11.2% in 2013. However, the $13 level has proven itself as a formidable foe, and has rejected all but two of MGM's daily closes since the start of the year. The equity has pulled back from this technical ceiling in today's session, and was last seen 0.2% lower to trade at $12.95.


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