Caesars Entertainment Corp (CZR): Pre-Earnings Put Volume Explodes

Caesars Entertainment Corp puts are flying off the shelves today

by Karee Venema

Published on Oct 22, 2014 at 1:54 PM
Updated on Apr 20, 2015 at 5:09 PM

Caesars Entertainment Corp (NASDAQ:CZR) is down 5.5% this afternoon to trade at $11.76, after the Philippine government said the casino operator must put up a higher initial cash outlay if it wants to invest in the country. Additionally, a gambling bill in Japan has been delayed once again, making it questionable whether new casinos could be built in time for the 2020 Summer Olympic Games in Tokyo. In the options pits, puts are trading at five times the average intraday rate, and are outpacing calls by a nearly 107-to-1 margin. Amid this accelerated demand, the equity's 30-day at-the-money implied volatility (IV) has jumped 16.0% to 100.7% -- in the 99th percentile of its annual range.

Drilling down, all 10 of CZR's most active options reside on the put side, with longer-term traders buying to open the equity's January 2016 5- and 12.50-strike puts. Shorter-term traders, meanwhile, are targeting the stock's January 2015 9-strike put, where nearly 1,100 contracts have changed hands. The majority of these puts have traded at the ask price, IV is up 20 percentage points, and fewer than 300 contracts are currently in residence here, making it safe to assume new positions are being purchased.

The volume-weighted average price (VWAP) for the January 2015 9-strike puts is $1.65, making at-expiration breakeven $7.35 (strike less VWAP) -- territory not charted by the stock since January 2013. Profit will accrue on a move down to zero, while losses are limited to the initial cash outlay, should CZR settle north of the strike at the close on Friday, Jan. 16 -- when the options expire.

Widening the scope, option traders have been upping the bearish ante ahead of CZR's third-quarter earnings report, tentatively scheduled to hit the Street next week. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, CZR's 10-day put/call volume ratio of 11.02 ranks just 2 percentage points from an annual bearish peak. Following Caesars Entertainment Corp's (NASDAQ:CZR) last turn in the earnings confessional in August, the stock shed 6.5% in the subsequent session.

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