Option Traders Split On Volatile Caesars Entertainment Corp (CZR)

Caesars Entertainment Corp saw a rush of short-term option buying yesterday

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Published on Nov 20, 2014 at 10:30 AM
Updated on Jun 24, 2020 at 10:16 AM

Caesars Entertainment Corp (NASDAQ:CZR) has spiked more than 12% out of the gate, following news of an $18.4 billion restructuring plan. This comes just a day after the stock fell 6.2%. Also on Wednesday, calls traded at roughly 1.3 times the expected rate, with plenty of speculators initiating positions.

CZR's two most active strikes yesterday were the November 13.50 put and 14.50 call. The vast majority of the contracts crossed at the ask price, and nearly all of them translated into open interest overnight, making it safe to assume the bets were bought to open.

Today's massive rally -- which has CZR sitting at $16.17 -- is bad news for the put traders, and good news for the call buyers. The former group anticipated the shares would breach $13.50 by week's end, when the front-month contracts expire -- a prospect that's looking increasingly unlikely.

By contrast, the call buyers appear to be in great shape. Delta on the now in-the-money contract has spiked to 0.71 from 0.48 at last night's closing, suggesting a 71% chance the call will be in the money at tomorrow's close. What's more, these speculators paid a volume-weighted average price of $0.55 for their bets, and the bid price on the call is now $1.45 -- indicating paper profits are on the table for those that want to close out their positions today.

As alluded to, Caesars Entertainment Corp (NASDAQ:CZR) announced a major restructuring effort last night, as the firm attempts to prepare for its impending bankruptcy filing. If the plan takes effect, the company's biggest unit -- Caesars Entertainment Operating Co. -- would convert into a real estate investment trust (REIT).


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