Casino and resort operator MGM Resorts International (MGM) is down 33% over the past year on fears of a consumer slowdown in travel and tourism. One trader sees further downside in the months ahead.
That’s based on the September $26 puts. With 168 days until expiration, volume just jumped 50-fold, from 145 contracts to 7,200. The buyer of the puts paid $1.33 to make the bearish bet.
MGM shares recently traded for about $31, so shares would need to drop by $5, or about 16%, for the option to move in-the-money. The stock recently hit a new 52-week low of $28.63.
Given the rate of share decline, MGM shares could slide to the point where shares move in-the-money.
While the stock is in a downturn, revenue is still flat over the past year, even as earnings growth has slid in half. However, MGM shares trade at 12 times earnings, and 0.5 times its price-to-sales, a reasonable discount to the overall market now.
Action to take: MGM shares are still in a downtrend right now. Interested investors should look for signs of a turnaround before making a buy. MGM currently does not pay a dividend.
For traders, the September $26 puts are well-positioned for further long-term weakness in shares. Given their current cost, the options can likely see mid-to-high double-digit returns.
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 company mentioned in this article.
