Amid a slower-than-expected rebound in Macau, Vegas Sands (NYSE:LVS) stock is languishing. But some options traders see an upside opportunity. Vegas Sands is the largest operator in Macau.
The largest publicly traded gaming company by market capitalization is down 14.13 percent year-to-date. That’s one of the worst performances among US-listed casino stocks. Even with a pop today, the Sands Macau operator is on pace to finish June with a double-digit slide and is on pace for its fifth consecutive weekly decline.
While Macau’s recovery from the coronavirus pandemic is proving painfully lethargic for gaming executives and investors alike, some market participants aren’t throwing in the towel on LVS stock just yet.
Over in the options pits, calls have been more more popular than usual,” according to Schaeffer’s Investment Research. “This is per LVS’ 10-day call/put volume ratio of 13.64 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 92% of readings from the past year, indicating calls being picked up at a faster-than-usual rate in the last two weeks.”
Calls are the options contracts traders purchase when they are comfortable betting the underlying security will appreciate in value. Puts are bought in anticipation of that security’s prices declining. In other words, data cited by Schaeffer’s implies overtly bullish positioning in Sands options.
With the pending sale of Venetian, Palazzo, and the Sands Convention Center on the Las Vegas Strip, LVS will soon have no assets in the US, at least temporarily.
The operator has derived the bulk of its earnings before interest, taxes, depreciation and amortization (EBITDA) and revenue from Macau — where it runs five integrated resorts — and Marina Bay Sands in Singapore. That means LVS stock is tethered to Macau recovery, which has moved in fits and starts because of the gaming hub’s zero-tolerance policy regarding new COVID-19 cases.
That’s hampered travel with the nearby Guangdong province and Hong Kong, both vital arteries in terms of Macau arrivals. Some good news may be emerging on that front, as JPMorgan analysts speculate Macau may be working with Hong Kong to loosen travel restrictions.
“Our checks with some Macau hotels suggest the government sent out a notice a few days ago on a planned reopening of the border,” noted JP Morgan analysts DS Kim, Derek Choi, and Livy Lyu.
Data referenced by Schaeffer’s indicate that, for now, Sands shares aren’t overly volatile.
“The stock’s Schaeffer’s Volatility Index (SVI) of 35% stands higher than just 12% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations at the moment,” according to the research firm.
Near-term catalysts for the stock, beyond resumption of normal travel to Macau, could include acquisitions or the resumption of its once lofty dividend that was suspended to conserve cash during the pandemic.