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MGM Resorts Attracts the Attention of Near-Term Bulls

Call volume has been accelerating on MGM in recent months

by 12/21/2012 11:40 AM
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MGM Resorts International (NYSE:MGM - 11.52) has seen a flurry of bullish options activity in recent months, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day call/put volume ratio of 3.67 shows that nearly four calls have been bought to open for every put throughout the past 10 weeks. What's more, this ratio ranks in the 98th percentile of its annual range, indicating calls have been accumulated over puts at near annual-high clip.

This bullish flow is being continued in today's session, where call volume is easily outpacing put volume. Around 23,000 calls have changed hands so far, compared to fewer than 2,700 puts. Near-term bulls are circling around MGM's 12/28 11.5-strike call, which has seen more than 1,300 contracts trade. The majority of these have changed hands at the ask price, and open interest at this strike is only 10 contracts. In other words, it appears new positions are being initiated here today.

The buyers of these in-the-money calls will begin to see a profit with each step north of $11.70 (the strike plus the volume-weighted average price [VWAP] of $0.20) MGM takes through next Friday, when these weekly options expire. This breakeven level is a slim 1.6% above the stock's current price. Should the equity fail to topple this mark, the most the traders would part with is the initial net debit paid.

This inclination toward bullish bets is understandable, given MGM's respectable 21% year-over-year advance. Additionally, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 14 percentage points during the past 20 sessions. After announcing a public offering in early November, the equity shot higher, gaining a foothold atop its 10-day moving average.

This recently found level of support is being tested in today's session, though, as MGM participates in the broad-market bloodshed. At last check, the equity was down 1.2% to trade at $11.52.


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