Trade Update -$LVS: Pulled card out of my @&%, but folding for loss

by CC August 21, 2015 9:54 am • Commentary

Sometimes when a big selloff comes right before expiration you can get bailed out on trades that were worthless. That happened here in our $LVS trade. Here was the original trade from way back in early June:

TRADE – Buy the LVS ($50) July 1st weekly/ August regular 47.50 put calendar for $1

The stock is down sharply in recent days and we now can get out of this trade:

Action – Sold to close the LVS ($47.60 ) August 47.50 puts at .30 for a .70 loss

Bad trade, was wrong almost from start on direction, really sucks to be right(ish) with hours to expiration. Trading is hard.


New Trade – $LVS: Sandstorm

Last Wednesday on CNBC’s Fast Money we had former star Casino/Gaming Analyst Jason Ader, now board member of Las Vegas Sands (LVS) on the program. It was a very interesting interview as he described the shift in customers in Macau, away from high-rollers to mass market, as he described as:

“indicative to the customers that Walmart and McDonald’s are trying to target in China”.

The main take-away, was that despite overcapacity in Macau the worst could be over, and it may not be as bad as the press in the west assumes. Despite that, Ader still feels that:

“as an investor in Macau, my expectations are fairly low over the near term”.

Watch interview here:

We have written a bit (read here) about the interesting disconnect between gaming revenues in Macau and the health of the Chinese economy. We know there are a lot of factors that make a specific correlation somewhat weak, but stocks like WYNN and LVS, even accounting for already poor sentiment and dramatic declines from 52 week highs, will overshoot on the downside as they did on the upside.

WYNN’s 175% rally from the 2012 lows to the March 2014 highs, and subsequent 60% decline is in one picture irrational exuberance matched with an unholy unwind. And it may not be over:

WYNN 5yr chart from Bloomberg

Las Vegas Sands (LVS) which last year had a total of $14.5 billion in sales, $9.5b from Macau, $3.2b from Singapore and $2b from the U.S. appears to be a decent target on the short side as sales are expected to be down 14% in 2015 while depending on a predicted rebound of 6% next year.  Who knows where the bottom is, but this mass market customer in China is difficult to get a good read on in the midst of the largest smoking ban ever.

LVS 5 year chart looks a tad different to me, while it rallied 155% from its 2012 lows, it is now only down 43% from the 2014 highs:

LVS 5 yr chart from Bloomberg

Backing the LVS chart out to the post financial crisis lows, the stock recently broke the uptrend that had been in place since early 2009, and is now sitting on important long term support at $50:

LVS 7 year chart from Bloomberg

Options prices look fair to almost cheap, with 30 day implied vol at about 27, vs 30 day realized vol (how much the stock has been moving) at about 26, with IV recently coming off of 2015 lows:

LVS 1yr chart of 30 day IV (blue) vs 30 day realized vol (white) from Bloomberg

Earnings will likely come in mid July but it’s unclear whether that will fall before or after July 17th expiration. We know it won’t be before July 1st so we like the idea of financing August puts by selling the July 1st ones:

TRADE – Buy the LVS ($50) July 1st weekly/ August regular 47.50 put calendar for $1

– Sell 1 July 1st 47.50 put at .85

– Buy 1 August 47.50 put for 1.85

Rationale: This is trade that can be a winner before the earnings on a small move lower in the stock towards the 47.50 strike. But it can be a big winner after July 1st as the position is then an August put (that could be spread) into the event.