MGM Stock Is Ripe for a Bearish Play

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MGM Resorts International (MGM) isn’t so grand these days. In fact, it might not even qualify as great.

MGM Resorts International 185

With the ongoing tumbling act, MGM’s stock price has descended 30% over the past year, including double-digit losses so far in 2015.

To be fair, casino stocks of all stripes have suffered. Las Vegas Sands (LVS) is down 30% in the past year while Wynn Resorts (WYNN) has been carved in half.

All three stocks received some love this week and rebounded aggressively off of their lows. Unfortunately for MGM stock, it remains firmly entrenched in a downtrend, making it highly likely that its bounce will fail quickly.

Further crippling the stock’s recovery chances is the massive amount of overhead resistance looming in the $19 zone. A glance at MGM stock’s history with this area reveals a significant amount of previous support. Before finally giving succumbing to the selling pressure last month, this support level was impenetrable.

As is usually the case, support once broken has a tendency of acting as resistance. It’s not a coincidence that this week’s bounce attempt peaked right at the $19 mark.

MGM stock price chart
Click to Enlarge
Source: OptionsAnalytix

Traders looking to exploit continued weakness in casino stocks (and MGM in particular) should be eying the current setup with interest. As with all retracements in a downtrend, this one is providing a low-risk entry point for bearish plays.

Find Favor with MGM Bear Call Spreads

Sell the Aug $20/$23 call spread for 43 cents credit. Consider it a bet that MGM stock price remains below $20 by August expiration.

The max profit is limited to the initial 43-cent credit and will be pocketed if the calls expire worthless. The max loss is limited to the distance between the strikes minus the net credit, or $2.57, and will be lost if MGM stock rises above $23.

In light of the heavy overhead resistance at $19, you could consider bailing on the trade quickly if MGM is able to vault above this level. Otherwise, I suggest exiting if MGM stock reaches the short strike of $20.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/mgm-stock-bearish-trade/.

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