Put prices triple in $MGM

MGM Resorts (MGM) is trading lower amid a rise in coronavirus cases in some states, delivering large returns on bearish option positions opened earlier this week.

On Jun. 24, Market Rebellion’s Unusual Activity Service flagged the purchase of 5,700 Weekly $17 puts expiring today for $0.31 to $0.48 with shares at $17.56. This was clearly fresh buying, as open interest in the strike was a mere 1,133 contracts before the trades occurred.

Those puts have sold for as much as $1.27 so far today, more than 3 times their average purchase price. The stock fell 10.31% in the same time period, illustrating how options can far outperform moves in their underlying shares on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

MGM has dropped today, last trading lower on the session by 5.92% to $26.68. The casino operator announced on Wednesday, Jun. 24, that it would require all guests inside public spaces to wear masks.