November 14th Options Now Available For MGM Resorts International (MGM)

The article outlines two options strategies for MGM Resorts International (MGM) stock: selling a cash-secured put and a covered call. Selling the $32.00 strike put for 56 cents offers an effective purchase price of $31.44 (a 9% discount to current market) with a 72% probability of expiring worthless, yielding a 14.84% annualized return. Alternatively, a covered call strategy by selling the $37.00 strike call against shares bought at $35.05 could generate a 7.05% return if the stock is called away, or a 12.58% annualized premium if the option expires worthless (57% probability), presenting methods for income generation or discounted entry into MGM shares.

Analysis

The provided text outlines two distinct options-based strategies for MGM Resorts International (MGM), whose shares are currently trading at $35.05. The first strategy involves selling a cash-secured put at the $32.00 strike, which represents a 9% discount to the current price. This generates an immediate premium of 56 cents per share, creating an effective cost basis of $31.44 if assigned. Analytical models suggest a 72% probability of this out-of-the-money put expiring worthless, which would translate to a 1.75% return on the cash commitment, or a 14.84% annualized yield. The second strategy is a covered call, selling the $37.00 strike call for a 52-cent premium against shares owned. This caps the potential gain, offering a total return of 7.05% if the stock is called away by the November 14th expiration. The probability of this call expiring worthless is 57%, which would provide a 12.58% annualized yield boost from the premium alone. A key observation is the elevated implied volatility in the options, with the put at 63% and the call at 49%, both significantly higher than MGM's actual trailing twelve-month volatility of 42%. This discrepancy suggests that options premiums are currently rich, which enhances the potential returns from selling these contracts but also indicates that the market is pricing in a greater potential for price swings than has been observed historically.

Key Decisions for Investors

• Investors bullish on MGM but seeking a lower entry point could consider selling the $32.00 strike cash-secured put, as it either generates a 14.84% annualized yield or facilitates acquiring the stock at an effective 9% discount to its current price.
• Current MGM shareholders with a neutral to moderately bullish short-term outlook could write the $37.00 covered call to generate a 12.58% annualized yield from the premium, but must be willing to cap their total return at 7.05% if the stock appreciates beyond the strike price by expiration.
• Traders should note that the attractive yields are a function of implied volatility (49-63%) exceeding historical volatility (42%), presenting a premium-selling opportunity but also signaling that the market anticipates higher-than-normal price fluctuation risk.