Option Bulls Bombard Surging MGM Resorts International (MGM)

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

Mar 17, 2015 at 11:10 AM
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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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