Option Bears Are Gambling on Caesars Stock

CZR put buying was accelerated in the past two weeks

by Lillian Currens

Published on Feb 25, 2019 at 3:30 PM
Updated on Feb 25, 2019 at 3:30 PM

Caesars Entertainment Corporation (NASDAQ:CZR) showed up on Schaeffer's Senior Quantitative Analyst Rocky White's list of the 20 S&P MidCap 400 Index (MID) stocks that saw the most options activity in the past 10 days. Names highlighted in yellow are new to the list. CZR options traders picked up slightly more calls than puts in the past two weeks, which encompassed both Caesars' negative earnings reaction last week and (unsuccessful) pressure to sell from activist investor Carl Icahn. In fact, reports are now circulating that the casino company is in talks to offer Icahn board seats and a role in choosing its new CEO.

Options Volume Chart Feb 25

In the past 10 days across all exchanges, Caesars Entertainment saw 168,113 calls cross the tape, and 166,684 puts exchanged. Narrowing in on data from the the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders bought to open 1.05 CZR puts for every call in the same time frame. This 10-day put/call volume ratio sits in the 94th percentile of its annual range, pointing to a healthier-than-usual appetite for bearish bets of late.

CZR stock has rallied more than 50% since its Dec. 24 low of $5.83. However, the shares ran in to a wall in the form of their 200-day moving average, and after shedding more than 4% on Friday after earnings, are pacing for another day in the red, last seen 0.3% lower at $9.02. From a longer-term perspective, CZR has been in a channel of lower highs and lows since peaking above $14 in February 2018.

CZR stock chart feb 25

Short sellers are undoubtedly celebrating Caesars' recent bad luck, too, with short interest up almost 25% in the past two reporting periods. The 129.09 million shares sold short now represent an impressive 20% of the stock's available float, and would take about a week to cover, at CZR's average daily trading volume. 

Analysts have been singing a much different tune, however. Six of nine analysts have crowned Caesar with with "strong buy" or "buy" rating, with the other three doling out "holds" and not a "sell" to be seen. Plus, the lofty consensus 12-month target price of $11.16 is a 23.4% premium to current levels. Should the casino concern continue to back down from trendline resistance, a round of analyst downgrades or price-target cuts could translate into headwinds. In fact, just this morning SunTrust Robinson slashed its price target on CZR to $11 from $13.


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