A Chinese casino operator is struggling at resistance, and bearish options traders are betting on a drop.
Melco Resorts & Entertainment (MLCO) has been trapped around $23.50 for the last month. That level was also a peak in June 2017, which could make some chart watchers think it will continue to hold the stock in check.
Check out the large bearish put spread detected shortly after lunch:
- 14,323 May 20 puts were bought for $0.50.
- 14,323 May 18 puts were sold for $0.21.
Owning puts fix the price where traders can sell a stock. Selling them generates income and creates an obligation to buy shares. A spread combines the strategies in order to leverage a move between two levels.
In this case, they paid just $0.29 net. They now stand to collect $2 if the shares close at or below $18 on expiration.
MLCO was little changed at $22.50 in afternoon trading. So, the trader could make 590 percent from the stock falling just 20 percent. See our Knowledge Center for more on the leveraging power of options.
Overall options volume was about 9 times the daily average in the last month. Puts outnumbered calls by a bearish 128-to-1 ratio.