Call Buyers Target MGM Stock Amid Seasonal Headwinds

MGM's last two fourth-quarter earnings releases have not been well received by Wall Street

by Josh Selway

Published on Feb 2, 2018 at 12:21 PM
Updated on Jun 24, 2020 at 10:16 AM

MGM Resorts International (NYSE:MGM) is one of the worst S&P 500 stocks to own in February, going back 10 years. Shares of the casino stock have shed 6.87% on average during the month over that time span, finishing positive just three times. Plus, the stock has been stung by negative earnings reactions, with MGM losing 9.3% and 8.3%, respectively, in the sessions immediately following the last two February earnings releases. But options traders have still been betting bullishly ahead of the casino concern's upcoming earnings release, scheduled for the morning of Tuesday, Feb. 20.

Specifically, more than 31,000 calls have been bought to open during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to about 13,600 puts. The most popular call overall, based on open interest added, was the March 39 call. Data shows almost exclusive buy-to-open activity here, so many have been betting on MGM stock rising above $39 in the weeks ahead.

With earnings still a few weeks away, volatility expectations have yet to take off. For example, MGM Resorts has a Schaeffer's Volatility Index (SVI) of 27%, which ranks in the 28th annual percentile. So, on a relative basis, buying premium on near-term options looks attractive.

Meanwhile, analyst opinions remain high. Eight of the 12 brokerage firms covering the stock say it's a "strong buy" or "buy" and the average 12-month price target is $39.13. At last check, MGM shares were down 2.7% at $35.82 amid broad-market headwinds, but they still sport a one-year gain of 24%.


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