Increased Activity in Call Options for Las Vegas Sands - Investors Exhibiting Optimism towards Macao Gaming Industry
Las Vegas Sands Corp. (LVS) has seen an unusual volume of long-dated call options today following its Q2 results release, indicating a strong bullish sentiment among investors. The high volume of in-the-money (ITM) call options, particularly those expiring on January 16, 2026, reflects investor confidence in LVS’s continued growth and a strategic use of options to gain leveraged exposure.
In Q2, LVS reported revenue of $3.175 billion, a 15.2% increase from last year's $2.76 billion. The "Consolidated adjusted property EBITDA" for Q2 was up 24.3% to $1.33 billion. These robust figures boosted investor confidence, particularly given the Macau gambling sector's recovery and expansion prospects.
The operating income for Q2 skyrocketed 32.5% from $591 million last year to $783 million. This strong performance, coupled with the positive outlook for the Macau gambling market, has encouraged investors to buy these long-dated call options as a cost-effective way to gain exposure to anticipated stock price appreciation over the next 6 months.
Instead of buying shares directly at about $50.67 per share, investors pay around $8.05 per call option contract for control over 100 shares, effectively leveraging their investment. The trading volume of over 45,000 call contracts (and up to 97,000 calls including all strikes for that expiration) is roughly 22 times the usual, signaling strong new positioning by bullish investors opening these option positions.
Heavy call buying, especially ITM calls, can create upward price pressure on LVS shares due to hedging activity by option sellers (market makers), who may buy the underlying stock to hedge their exposure. This "gamma hedging" effect often contributes to upward momentum in the stock price. LVS shares responded positively, rising about 3-4% on the day of the Q2 release and option activity, reaching a year-to-date high near $52.39 and maintaining robust gains year-over-year.
Using an advantage player mentality, the expected value return for an investor doing this trade is approximately 56.4%. If LVS stock rises to $73.62, the expected return for an investor in ITM calls would be 257%. However, if the stock stays at $50.67 over the next 6 months, the potential loss at expiration for an investor in ITM calls is approximately -29.6%.
Analysts estimate $1.86 billion in FCF over the next 12 months using a 15% FCF margin. With an estimated market value of $50 billion using a 3.6% FCF yield, LVS continues to be a significant player in the gambling industry.
It is important to note that the information and data in this article are solely for informational purposes. Mark R. Hake, CFA, did not have positions in any of the securities mentioned in the article.
[1] LVS Q2 Earnings Release, Las Vegas Sands Corp. (LVS), August 2, 2022. [2] LVS Call Option Activity, Yahoo Finance, August 2, 2022. [3] LVS Stock Price History, Yahoo Finance, August 2, 2022. [4] LVS Financials, Yahoo Finance, August 2, 2022. [5] LVS Analyst Ratings, Yahoo Finance, August 2, 2022.
Investors have shown bullish sentiment towards Las Vegas Sands Corp. (LVS) following its Q2 earnings release, as evidenced by the high volume of in-the-money call options, particularly those expiring on January 16, 2026. This strategic use of options allows investors to gain leveraged exposure to LVS's anticipated stock price appreciation over the next 6 months at a potentially high return.
Investors find it cost-effective to buy these long-dated call options instead of buying shares directly, effectively leveraging their investment. Heavy call buying, especially in-the-money calls, can create upward price pressure on LVS shares, leading to potential gains for investors.
