Several Support Layers in Place for Casino Stock

The security is usually able to shake off fall seasonality headwinds

Sep 14, 2022 at 10:35 AM
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Hotel and casino name Caesars Entertainment Inc (NASDAQ:CZR) is breaking out of a cup and handle pattern, as well as a long-term downtrend connecting peaks in August, April, and March of 2022, as well as October of 2021. The shares are breaking back above the 80-day moving average, too, which capped price action multiple times earlier this year, and has been a significant trendline in previous long-term bull rallies.

 
What’s more, Caesars Entertainment stock conquered the 10-week moving average, which is now sloping higher. This has led to long-lasting rallies in the past, except for September 2021. The security surged above significant open interest (OI) at the October 45-strike put as well, which had been suppressing price action of late, but could now act as support. It’s also worth noting CZR typically shakes off broader market seasonality in the form of fall headwinds, finishing September higher 78% of the time, for an average monthly gain of 5.5% over the last 10 years.

An unwinding of pessimism in the options pits could create additional tailwinds for the equity. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CZR’s 50-day put/call volume ratio ranks higher than 83% of readings from the past 12 months. This means puts are getting picked up at a much faster-than-usual clip.

Meanwhile, short interest is up 7.8% in the last two reporting periods, and now makes up 5.9% of the stock’s available float. Growing short interest after bottoming price action has led to some nice rallies for CZR in the past.

It’s also worth noting the security has frequently exceeded option traders' volatility expectations during the past year, per its Schaeffer's Volatility Scorecard (SVS) of 71 out of 100. Our recommended call has a leverage ratio of 3.8, and will double in value on a 27.7% rise in the underlying equity.
 
Subscribers to Schaeffer's Weekend Trader options recommendation service received this CZR commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.
 

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