October 10th Options Now Available For MGM Resorts International

The article details two options strategies for MGM Resorts International (MGM), currently trading at $40.02, offering distinct risk-reward profiles. A cash-secured put at the $39.00 strike, with a $1.20 bid, presents a potential 26.12% annualized return if it expires worthless (61% probability), or an effective cost basis of $37.80 if assigned. Alternatively, a covered call at the $42.00 strike, bidding $0.99, yields a 7.42% return if the stock is called away, or a 21.00% annualized premium boost if it expires worthless (57% probability), providing income-generation opportunities for investors holding MGM shares.

Analysis

The options market for MGM Resorts International (MGM), currently trading at $40.02, presents two distinct strategies for investors based on current pricing and volatility. The first involves selling a cash-secured put at the $39.00 strike, which offers an effective entry point at a cost basis of $37.80 if assigned, a significant discount from the current market price. Alternatively, if the put expires worthless—an event with a 61% calculated probability—the seller would realize a 26.12% annualized return on the cash commitment. The second strategy, a covered call at the $42.00 strike, is designed for current shareholders to generate income. This approach offers a 21.00% annualized yield boost if the option expires worthless (a 57% probability) or locks in a 7.42% total return if the stock is called away. A key observation is the elevated implied volatility in both the put (47%) and call (48%) contracts compared to the trailing twelve-month historical volatility of 42%. This volatility premium suggests that option sellers are being compensated for an expectation of greater price movement than has been observed over the past year, making premium-selling strategies appear quantitatively attractive.

Key Decisions for Investors

• Investors with a bullish outlook on MGM who are seeking to initiate a position could consider selling the $39.00 cash-secured put to either acquire shares at an effective cost basis of $37.80 or to generate a 26.12% annualized yield.
• Current MGM shareholders with a neutral-to-moderately-bullish short-term view may find the covered call strategy at the $42.00 strike attractive for income generation, offering a 21.00% annualized yield boost while capping upside at a 7.42% total return.
• Given that implied volatility of 47-48% is higher than the historical volatility of 42%, conditions are favorable for selling options premium, but investors should be aware that this premium reflects market expectations for price swings greater than those seen in the recent past.