Put Players Bet on a Pullback for MGM Mirage (MGM)

08/27/2009 10:04 am EST

Focus: OPTIONS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

MGM Mirage (MGM) attracted the attention of bearish bettors on Tuesday. The International Securities Exchange (ISE) reports that traders bought to open 4,692 puts on MGM yesterday, compared to just 902 calls. In other words, option players snapped up 5.2 times more puts than calls.

MGM price chartMost active on Tuesday was MGM's December 8 put, where 4,559 contracts crossed the tape on open interest of 2,160 contracts. About 97% of this volume traded at the ask price, suggesting a bias toward buying activity, and implied volatility climbed 3.1% as a result.

Following yesterday's flood of speculation, open interest at the December 8 put arrived today at 6,078 contracts, confirming that traders were most likely opening new long puts at this strike on Tuesday.

The day's pessimistic slant was a deviation from the recent trend on the ISE, where MGM has garnered a ten-day call/put volume ratio of 1.74. In other words, traders have purchased considerably more calls than puts in recent weeks, casting Tuesday's action as something of an anomaly.

Perhaps bearish speculators are wagering that the casino stock will pull back from resistance at the $9 level. Despite the solid support of its ten- and 20-day moving averages, this region has capped MGM's progress throughout August.

By Nick Perry of Schaeffer’s Trading Floor Blog

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