Option Bulls Bombard Surging MGM Resorts International (MGM)

MGM Resorts International (MGM) calls are trading at 10 times the average intraday pace

by Karee Venema

Published on Mar 17, 2015 at 11:10 AM
Updated on Jun 24, 2020 at 10:16 AM

MGM Resorts International (NYSE:MGM) is flying today -- up 9.5% at $21.50 -- on reports Land & Buildings Investment Management is urging the firm to transform its properties into a real estate investment trust (REIT), and spin off its casino assets into a separately traded company. Against this backdrop, calls are trading at 10 times what's typically seen at this point in the day. Short-term contracts are in high demand, too, per MGM's 30-day at-the-money implied volatility, which has jumped 9.9% to 35.2%.

Most active is MGM'S March 22 call, which appears to be seeing a mix of buying and selling. However, it's unclear whether positions are being closed or opened here. More clear-cut activity is occurring at the equity's weekly 3/27 22-strike and May 22 calls, where all signs suggest new positions are being purchased. By buying the calls to open, speculators expect MGM to rally north of $22 by the respective expiration dates.

Similar to sector peer Wynn Resorts, Limited (NASDAQ:WYNN), call buying has been a popular strategy in MGM's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 4.12 ranks in the 91st annual percentile. In other words, calls have been bought to open over puts with more rapidity just 9% of the time within the past year.

Also like WYNN, MGM has struggled on the charts. Year-over-year, the shares have shed roughly one-fifth of their value (although, today's bull gap has the security hovering above its 2015 breakeven line). With nearly 10% of MGM Resorts International's (NYSE:MGM) float sold short, though, a portion of the recent call buying -- particularly at out-of-the-money strikes -- could be a result of shorts hedging against any unexpected upside.


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