Shares of casino operator MGM Resorts International (MGM) have slid lower in the past month on the latest Covid fears. One trader is betting those fears are overblown and shares will trend higher in the next month.
That’s based on the January $44 calls. With 37 days until expiration, 11,275 contracts traded against a prior open interest of 186, for a 61-fold rise in volume. The buyer of the calls paid $0.89 to make the trade.
Shares last traded around $40, so the call options would move in-the-money as long as shares rose about 10 percent in the next month.
With a pre-Omicron news high of $50, that kind of move in-the-money is potentially possible in the next few weeks. Shares are still up 40 percent over the past year, even with the recent market selloff.
Action to take: The casino operator is still coming off some losses from last year, but did earn a profit in the most recent quarter and traded at 33 times earnings. A continued move to pre-pandemic casino traffic could lead to a much higher valuation for company shares. At the moment, the stock only pays a penny annual dividend, so income investors might want to look elsewhere.
For traders, the option is a bit of a gamble, but inexpensive enough for high-double-digit gains in the next few weeks. Traders should look for any jump higher in shares as a sign to take profits given the short time on the trade.
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.