Bulls Target Another Gaming Stock: Options Recap

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Disclosure: This article is intended for educational purposes only and should not be considered a recommendation. Options trading is not suitable for all investors.

Bulls put their chips on the table yesterday as a gambling stock pushed lower.

International Game Technology (IGT) dropped as much as 6 percent after missing profit estimates. Call volume picked up near the lows, and surpassed 33,000 contracts by the end of the session — IGT’s biggest total in almost four years. A ratio spread was the single largest trade of the bunch:

  • 5,000 June 29 calls were bought for an average cost of $0.425.
  • 10,000 June 31 calls were sold for $0.075.
  • That translates into a cost of $0.275. The investor will pocket $2 per share if IGT closes at $31 on expiration. Gains will erode above that level because they’re short twice as many calls.

There’s a good chance the investor owned 500,000 shares and is simply using the spread to pad their profits from a move back to $31. It’s even possible he or she entered the stock near that recent high and wants to repair a losing trade. If they don’t have an underlying position in the equity, there’s considerable risk to selling naked upside calls. See our Knowledge Center for more.

IGT ended the session down 4.53 percent to $28.46, but managed to hold its 50-day moving average. The U.S. Supreme Court’s May 14 decision to legalize sports betting focused attention to the company, although it’s lagged rival Scientific Games (SGMS) and establishment operators. Click here for access to our special report on the group.

After Tuesday’s ratio spread in IGT, more buying was detected in the June 29 calls for $0.40. The June 28s and June 30s were also purchased in significant size. Puts accounted for just 11 percent of the overall options volume in the name, which is unusually bullish for a stock that was sliding lower.

In conclusion, derivatives traders have been active in gaming stocks, and yesterday they targeted IGT.

International Game Technology (IGT) chart showing historical call volume and 50-day moving average.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.