Eldorado Resorts Rally Delivers Big Jackpots to Options Traders

Posted on: May 27, 2020, 09:30h. 

Last updated on: May 27, 2020, 11:07h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

With Eldorado Resorts (NASDAQ:ERI) stock in the midst of a stunning reversal off its March lows, the real jackpot winners are options traders, not gamblers visiting the company’s casinos.

Options Traders Score On Eldorado Stock
Some traders made a mint on the Eldorado stock surge. (Image: Wall Street Journal)

Options market data indicates some traders were prescient enough to bet on the regional gaming name when it was hovering near its March nadir, a wager that’s since been handsomely rewarded.

As gaming stocks were being drubbed in March due to the coronavirus pandemic, a trader stepped into Eldorado June $15 calls, buying 2,000 contracts at prices ranging from $2.10 to $2.60, according data and research firm Market Rebellion.

Those calls closed marked for $19.90 today (Tuesday), more than 7.5 times their purchase price. The stock rose 354.26% in the same time frame, a huge move, but still nowhere near that of its options,” said the options data provider.

Options are leveraged bets on an underlying security. Calls are the contracts market participants purchase when making bullish trades, while puts are the instruments used to wager on lower prices in the underlying security. In the case of the aforementioned ERI trader, the holder of those contracts needed the stock to run to $15 prior to June expiration. But that target was easily smashed as the equity trades over $34 at this writing Wednesday.

Not the Only One

The aforementioned trade in ERI options wasn’t the only one of note in recent weeks. On May 19, a trader stepped into weekly options on the gaming company for significant size. On that day, a market participant scooped up 3,800 Eldorado May $30 weekly calls at prices ranging from $1.65 to $2.10.

“Those calls traded for $4.90 today (Tuesday), more than 2 times their purchase prices,” notes Market Rebellion. “The stock rose 18.98% in the same time frame, a huge move, but still nowhere near that of its options.”

In both examples, traders benefited from good timing. Eldorado stock nearly doubled over the past month, buoyed by news of gaming properties reopening in Louisiana – a marquee market for the operator – and the revealing of June 4 as a restart date for Nevada casinos. Last week, ERI resumed business at its three Mississippi venues.

Weekly options expire every Friday, where as monthly contracts conclude on the third Friday of every month.

What’s Next

The resurgence in Eldorado stock is undoubtedly breathtaking, and ranks as one of the more jaw-dropping moves by gaming stocks over the past couple of months. Even with that big move, the shares would need to double to return to the 52-week high.

That’s a big ask. But the name isn’t short of catalysts. ERI could put the finishing touches on its $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR) next month.

If the company can wring cost cuts out of that deal and capitalize on an expected resurgence in regional gaming as the US economy reopens, Wall Street could renew its affinity for the stock.