Massive leverage in bullish MGM bet
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,500 December 18 calls for about $0.65 and the sale of an equal number of December 13 puts for $0.50 today. Volume was more than twice the previous open interest at each strike, indicating that new positions were opened.
Owning calls lock in the price where shares can be purchased, while selling puts generates income and creates an obligation to backstop other investors if the stock tanks. Combining the two strategies is essentially a cheap way to get long the shares.
For instance, he or she paid $52,000 and now controls the equivalent of roughly 175,000 shares. Buying that much stock with common equity would cost more than $2.7 million. Nonetheless, the position does include downside risk and can lose much more than the initial outlay. (See our Education section)
MGM is trading at $15.74 this afternoon, up 3.15 percent on the session and 36 percent so far this year. In addition to a strong earnings report in May, the company has benefited from investor sentiment supporting consumer-discretionary stocks and companies related to travel. (See our researchLAB market scanner for more.)