Option Traders React as Casino Stocks Come Up Snake Eyes

Las Vegas Sands Corp. (NYSE:LVS) and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) are both fresh off three-year lows

by Alex Eppstein

Published on Sep 29, 2015 at 2:21 PM
Updated on Jun 24, 2020 at 10:16 AM

Gaming stocks are getting punished today, after junket operator Neptune Group warned that it may need to shutter its business in Macau, citing declines in the number of VIP gamers. Also, China's crackdown on corruption within the peninsula has it staring at a 16th straight monthly decline in gambling revenue. Two victims of this news are Las Vegas Sands Corp. (NYSE:LVS) and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL).

Right now, LVS is down 3.6% at $38.80, and has shed one-third of its value in 2015. Earlier, in fact, the stock skimmed a three-year low of $37.95. The sell-off has short-term option traders on the prowl, with overall intraday volume at 1.4 times the norm.

The weekly 10/2 series of options, which expires at this Friday's close, accounts for the top five strikes. Looking more closely, buy-to-open activity is detected at the weekly 10/2 38.50-strike put, as speculators gamble on LVS breaching the strike by week's end. On the other hand, traders are initiating long positions at the weekly 10/2 36.50-, 40-, and 40.50-strike calls, attempting to cash in on a near-term rebound in the shares.

Longer term, call buyers have had the upper hand. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Las Vegas Sands Corp.'s 50-day call/put volume ratio of 1.21 ranks in the 72nd percentile of its annual range. In other words, traders have been purchasing fresh calls over puts at an accelerated pace in recent months.

Meanwhile, MPEL is even worse off -- down 6.3% at $13.40, and fresh off a three-year low of $12.80. Additionally, the stock is on the short-sale restricted list, after plunging as much as 10.4%.

As a result, one group of short-term traders is upping the bearish ante. Specifically, the weekly 10/23 13.50-strike put is seeing some buy-to-open activity, at a volume-weighted average price (VWAP) of $1.02. In other words, these buyers foresee MPEL breaching breakeven at $12.48 (strike less VWAP) by the close on Friday, Oct. 23, when the series expires.

This represents a change of pace when compared to recent history. Specifically,  Melco Crown Entertainment Ltd's 10-day call/put volume ratio of 9.06 indicates nine calls have been bought to open for each put over the last two weeks, across the ISE, CBOE, and PHLX. Moreover, this ratio sits just 12 percentage points shy of an annual peak.

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