China’s economy has been improving, and options traders want to cash in with a major casino operator.
Heavy call buying was detected yesterday in Las Vegas Sands (NYSE: LVS), with three different contracts purchased on the hour as the session got underway. It began with 3,700 of the 12-May 57.50s changing hands for $1.16. Attention then shifted to the April 56.50 calls, with 2,800 purchased for $0.58, and then 2,500 of the 5-May 57s traded for $1.27.
Calls fix the price where a security can be bought, along with a time frame. They tend to appreciate if a stock rallies, but can lose all their value if no move occurs. For instance, a gain of less than 2 percent in LVS by Friday will more than double the value of the April 56.50s. Their breakeven is at $57.08 and they’ll go to zero if the shares close below $56.50 on expiration.
Don’t let its name fool you. Despite taking its name from a city in Nevada, LVS earns more than half its profit from the Chinese gambling hub of Macau. The company also reports earnings later this month, so Monday’s buyers were apparently looking for a nice surprise to lift the stock.
Source: OptionsHouse by E*TRADE
Its last set of numbers on January 25 missed expectations, but analysts have been getting more optimistic thanks to a sharp uptick in Macau’s monthly casino activity.1 Tax collectors reported that the island’s tax on overall gaming revenue surged 18 percent in both February and March.2 That was followed by positive news for the overall country this week, with officials in Beijing reporting better-than-expected economic growth in the first quarter and monthly industrial production.3
LVS rose 0.97 percent to $56.44 yesterday. It chopped in the high $80s three years ago, only to slide all the way down below $40 by early 2016. The stock has been trying to rebound since, and recently bounced at its 200-day moving average – something chart watchers may consider evidence that the longer-term trend has turned positive.
Overall options volume was more than four times the daily average in the session, with calls outnumbering puts by more than almost 6 to 1.
In summary, China’s economy has been on the mend and traders apparently hope the rising tide will lift LVS.
1. Bank of America Merrill Lynch: Macau: March GGR up +18.1% Y/Y raising full year to +12%. 4/3/17.
2. The Star Online (Malaysia). Macau gambling revenue at 2-year high in February. 3/2/17.
3. RTT News: China Q1 GDP Growth Accelerates On Investment, Production. 4/17/17.