Shares of casino giant Las Vegas Sands (LVS) are down about 28 percent in the past year. One trader is betting on a potential rebound in the coming months.
That’s based on the October $40 calls. With 91 days until expiration, 7,891 contracts traded compared to a prior open interest of 125, for a 63-fold rise in volume on the trade. The buyer of the calls paid $2.71 to make the trade.
Shares are just over $37, so they would need to rise a little over 10 percent for the option trade to move in-the-money.
Casinos tend to be sensitive to changes in the economy, so the option trade is a bet that things may not be as bad as they appear. With the company not currently earning a profit, and with revenues down about 20 percent in the past year, it’s possible the casino will still struggle.
Action to take: Investors should avoid shares for now. There’s likely more downside as more data about an economic slowdown comes in and interest rates continue to rise. Plus, the company doesn’t pay a dividend to compensate holders.
For traders, given the range shares have been in between $30 and $38 in the past few months, it may make more sense to sell the call option here and collect the premium. However, if shares take off, that could lead to a large loss.
Traders could consider a put option instead, like the January 2023 $30 puts. Last going for about $2.25, they could make mid-double-digit profits on the next downswing in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.