Boyd Gaming Options Bull Strikes After Upgrade

It looks like a long call spread was initiated in the September series

Aug 14, 2018 at 2:07 PM
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Jefferies chimed in on casino stocks today, saying recent weakness in the sector creates "opportunity for regional and Nevada-driven stocks." While the brokerage firm turned bearish on Wynn Resorts (WYNN), it upgraded Boyd Gaming Corporation (NYSE:BYD) to "buy" from "hold." In reaction, BYD stock is up 2.2% at $35.16, and call options are running hot.

With about two hours left in today's trading session, 10,320 BYD call options have changed hands -- five times what's typically seen, and volume pacing in the 97th annual percentile. By comparison, just 22 puts are on the tape.

The bulk of today's activity is centered at the September 37 and 40 calls, where it looks like a trader initiated a long call spread for an initial cash outlay of $260,000 (5,000 contracts * $0.52 premium paid * 100 shares per contract). The short call lowered the cost of entry of buying a call outright, while also dropping the breakeven mark to $37.52 (bought 37 strike plus net debit).

However, the speculator has also forfeited the unlimited profit potential of a straight long call purchase. The maximum potential gain is capped at $2.48 per spread (difference between the two strikes less the net debit), no matter how far above $40 BYD stock rises by September options expiration.

Looking at the charts, the $39-$40 region has been a formidable foe for Boyd Gaming over the long term. Not only is this region home to the equity's Feb. 1 decade high of $40.44, but it also contained breakout attempts in both June and July. Below here, however, is BYD's 200-day trendline, which has helped usher the shares to a nearly 34% year-over-year return.

byd stock daily chart aug 14


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