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Bulls roll the dice on Melco Crown

Posted
10/23/2013 11:53:00 AM
By: optionMONSTER
Referenced Stocks:MPEL

Traders are rolling the dice with Melco Crown Entertainment, looking for the Chinese casino stock to rally back from today's selloff.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,250 November 34 calls for $1.40. Equal-sized blocks were sold around the same time in the November 31 puts for $0.45 and the November 38 calls for $0.25. Volume was more than triple open interest in all three strikes, indicating that new positions were initiated.

The investor paid $0.70 and will collect $4 if the stock closes at or above $38 on expiration 3-1/2 weeks from now--potential profit of 471 percent. He or she also faces the risk of additional losses on a drop below $31 because they sold puts. (See our Education section for more on long calls and short puts.)

MPEL is down 4.01 percent to $33.50 in midday trading but is up 44 percent in the last six months. It's been running hard as earnings and revenue grow sharply. The next quarterly report will probably occur early next month but the timing hasn't been announced yet. A good set of numbers could turn today's bullish trade into a huge winner.

The stock also peaked at $31 in September before bouncing at it this month, which could make some traders comfortable writing puts at that level.

Total option volume is 5 times greater than average in MPEL so far today, according to the Heat Seeker.