Casinos, copper and online actions: Options recap

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Below is a summary of noteworthy options trades from Monday, June 4.

Melco Resorts & Entertainment (MLCO) operates casinos in the Chinese gambling hub of Macau. It last saw $35 in July 2014, and options traders targeted a move to that level with a bullish ratio spread yesterday:

  • A block of 10,000 July 32 calls was bought for $1.55.
  • A block of 20,000 July 35 calls was sold for $0.39.
  • That nets out to a cost of $0.77.

Owning calls fixes the price where a stock can be purchased, while selling them forces the investor to deliver shares. Combining the two strategies is known as a vertical spread. Adding an extra set of short calls lowers the cost basis further, which can result in more leverage, but it also creates the risk of being naked short calls. (See our Knowledge Center.)

There’s a good chance Monday’s trader already owned 1 million shares and wanted to maximize their profit from a rally to $35. MLCO fell 1.21 percent to $31.92.

eBay (EBAY) got slammed lower on a weak quarterly report in April. Yesterday investors positioned for a quick rebound by amassing 16,000 8-June 39 calls, mostly for $0.25 to $0.52. Those short-term contracts expire this Friday and were just out of the money. Are traders looking for a quick rebound to fill that recent gap lower? EBAY rose 1.90 percent to $39.07.

EBay (EBAY) chart showing April 26 bearish gap.

Freeport McMoRan (FCX) is trying to claw back above its 50-day moving average. It looks like an investor came into the session long 15,000 June 18 calls in hope of a rally, but didn’t want time decay to erase the value of their contracts. So he or she unloaded their position for $0.12 and rolled into an equal number of July 18 calls for $0.50. They paid a net $0.38 per contract and now have an additional month for a potential rally in the copper producer. FCX rose 0.47 percent to $17.21.

Calls outnumbered puts by more than 5-to-1 in all three names yesterday, a sign of the bullish sentiment.

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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.