2 Reasons UBS is Selling Caesars Entertainment Stock

Options traders have been bullish toward CZR in recent weeks

Sep 24, 2018 at 10:08 AM
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UBS initiated coverage on Caesars Entertainment Corporation (NASDAQ:CZR) with a "sell" rating and $9 price target -- a 16.7% discount to Friday's close at $10.80. The brokerage firm warned of weak financials, saying the casino has managed EBITDA growth over the past year only as a result of cutting marketing costs, and cautioned on increasing competition.

Out of the gate, CZR stock is down 3.2% to trade at $10.45 -- bringing its year-to-date deficit to 16%. Nevertheless, the equity's 50-day moving average appears to be providing a foothold so far, a trendline Caesars recently reclaimed on tailwinds from takeover chatter.

The casino stock has been a popular target among options traders, too. There are currently 402,656 calls and 169,135 puts open on CZR -- ranking in the 86th percentile. In the last 10 sessions alone, the December series has been popular, with strikes in this series accounting for four of the top five largest CZR open interest increases.

Drilling down, the December 14 call saw the biggest rise in open interest over this two-week time frame, with more than 29,000 contracts added. Data from Trade-Alert suggests these out-of-the-money calls were used alongside the December 12 calls to initiate a call ratio spread last Wednesday, Sept. 19, expecting CZR to rally right up to $14 by December options expiration.

Caesars' December 11 call has also received notable attention in the last 10 days, with 24,835 contracts added. One trader in particular appears to have bought a 14,236-contract block for 85 cents apiece back on Sept. 13, creating an initial cash outlay of $1.21 million (number of contracts * premium paid * 100 shares per contract). This is the most the call buyer stands to lose if CZR settles below $11 at expiration, while profit will accumulate on a move above breakeven at $11.85 (strike plus premium paid).

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