Options Traders Blitz Crumbling Caesars Entertainment Corp (CZR)

A U.S. judge on Friday ruled Caesars Entertainment Corp (NASDAQ:CZR) must face bankruptcy lawsuits levied against its operating division

by Karee Venema

Published on Aug 29, 2016 at 11:24 AM
Updated on Aug 29, 2016 at 11:26 AM

Caesars Entertainment Corp (NASDAQ:CZR) is spiraling, after a federal judge on Friday ruled the casino concern cannot be exempt from $11 billion in bankruptcy claims levied against its Caesars Entertainment Operating Co, which filed for Chapter 11 protection in January 2015. At last check, CZR stock was off 16.1% at $6.32 -- the worst performer on the Nasdaq -- with stock volume in the 100th annual percentile, while option volume is in the 98th percentile of its 52-week range.

By the numbers, around 3.9 million CZR shares have changed hands so far, while about 2,800 options have traded -- more than six times what's typically seen in the stock's lightly traded options pits. Calls are outpacing puts by a 5-to-1 ratio, and the stock's weekly 9/2 7.50- and 8-strike calls have garnered the most attention.

Drilling down, it looks like speculators may be purchasing new positions at these weekly options, betting on CZR to rebound back above the strikes by the time the contracts expire at this Friday's close. With more than 31% of the security's float sold short, though, a portion of this activity could be a result of short sellers hedging their bearish bets against an unexpected bounce.

More broadly speaking, options traders have taken a bearish approach toward CZR in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio sits at a top-heavy 16.41. Plus, this ratio ranks above 80% of all comparable readings taken in the past year, meaning puts have been bought to open over calls at a faster-than-usual clip of late.

On the charts, Caesars Entertainment Corp (NASDAQ:CZR) has spent the past year wallowing in single digits. More recently, the stock has shed roughly 25% since taking a big M&A-induced bounce earlier this month, and bottomed at a fresh 52-week low of $5.39 earlier.

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