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Caesars Entertainment Skeptic Bets on a Deeper Decline

Options traders and short sellers alike are betting against CZR

by 9/26/2012 9:01 AM
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Bearish speculators set their sights on Caesars Entertainment Corporation (NASDAQ:CZR - 6.67) on Tuesday, as put volume on the casino stock rose to five times the daily average. Specifically, 1,002 puts changed hands on CZR, while only two calls crossed the tape -- revealing a clear preference for pessimistically slanted options.

Most of this put volume traded in a single block, as 1,000 November 5 puts were exchanged at the ask price of $0.30 at 1:17 p.m. Eastern. This sizable put purchase sent implied volatility on the option up 5.5 percentage points, and open interest at the November 5 put jumped overnight by exactly 1,000 contracts. In light of this data, it's safe to assume that one CZR bear opened a fresh batch of bearish puts on Tuesday.

By purchasing these options, the trader is wagering on the shares to fall below breakeven at $4.70 (strike price of 5 minus net debit of 0.30) by the time November-dated options expire. The maximum potential profit also happens to be $4.70, while the most the trader stands to lose is the initial premium paid of $0.30. Based on Tuesday's close at $6.67, the put buyer is looking for CZR to lose at least 30% over the next couple of months.

Tuesday's influx of put volume continued a growing trend for CZR. During the past 10 sessions, traders have bought to open 28.32 puts for every call on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, short interest accounts for a hefty 17% of the stock's float, or 16.9 times CZR's average daily trading volume.

Given the stock's downtrend on the charts, this broadly bearish attitude seems appropriate. Since its public trading debut last February, CZR has shed more than half of its value, and the shares are currently pinned beneath resistance at their 10-day, 20-day, and 40-day moving averages.

 Daily Chart of CZR since April 2012 With 10-Day, 20-Day, and 40-Day Moving Averages

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