Hotel and casino operator MGM Resorts International (MGM) are down just 2 percent over the past year, outperforming the overall stock market by about 10 percent. One trader sees shares declining in the coming weeks.
That’s based on the May $40 puts. With 51 days until expiration, 5,137 contracts traded compared to a prior open interest of 163, for a 32-fold rise in volume on the trade. The buyer of the puts paid $2.01 to make the trade.
Shares last went for about $41, so they’d need to drop less than 5 percent for the option to move in-the-money.
Shares hit a 52-week high earlier in the month, and have already started to decline in the past few weeks. MGM still remains well over its 52-week low of $26.41.
The casino operator is coming off a solid year, with earnings up 116 percent, and revenues up about 17 percent. However, casinos tend to be sensitive to the economy, and a slowing economy could lead to reduced casino revenues in the quarters ahead.
Action to take: MGM shares trade at a valuation of 73 times forward earnings, so interested investors should wait for a better valuation.
For traders, the trend is down, and that’s likely to continue in the months ahead. The May puts are reasonably priced for a short-term move lower, and traders should target mid-to-high double-digit trades.
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.