Melco Crown Entertainment has been on an explosive run, and one
investor is using options to smooth the ride.
Our tracking programs detected the purchase of 12,500 May 24 calls
for $0.65 and the sale of an equal number of June 25 calls for
$0.85. Volume was below open interest in the May contracts but not
the Junes, which suggests that an existing short position was
closed and rolled to the higher strike.
The investor probably owns shares and sold the options as part of a
strategy. Writing the upside contracts lets him or her collect
premium, reducing their downside risk and volatility. It also
limits the amount of money they can make in the event of a strong
rally. (See our
Today's transaction resulted in an incremental credit of $0.20. It
also raised by $1 the level at which the investor can sell his or
her shares, and kept them in the position for an additional month.
MPEL is down 1.17 percent to $24.43. The Chinese casino operator
has more than doubled since July, when it bounced off support at
its 500-day moving average. Its last earnings report on May 8 was
mixed, with profit ahead of forecasts but revenue lagging
Total option volume is 9 times greater than average so far today.
Calls outnumber puts by a bullish 30-to-1 ratio.
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