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3 Ways to Play Gaming Sector Earnings

Breaking down two straddle strategies and a bull call spread

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casino stocksLeisure spending has taken off during the past year, as the U.S. economy benefits from a modest recovery. The gaming sector has been a direct beneficiary of this rise in consumer spending, and we should see some direct evidence during the next week as several major players in the casino sector step up to release their quarterly earnings reports.

Las Vegas Sands Corp. (NYSE:LVS)

Headlining this influx of gaming sector earnings is Las Vegas Sands, which is scheduled to hit the earnings confessional after the close of trading this afternoon. The company has seen stellar organic growth, opening the doors to its newest Macau casino, the Sands Cotai, on April 11, and planning a potentially $35 billion Vegas-style strip in either Barcelona or Madrid, Spain.

As for earnings, Wall Street is expecting Las Vegas Sands to post a 56.8% spike in quarterly earnings to 58 cents per share. Revenue is seen soaring 21.8% to $2.57 billion. During the past four quarters, Sands has seen average year-over-year revenue growth of more than 39%.

On the sentiment front, LVS’ backdrop is leaning toward the bullish end of the spectrum. For instance, the brokerage community has doled out 17 “buy” ratings, compared to just three “holds” and no “sells.” Meanwhile, options traders are loading up on bullishly oriented calls, with the stock’s weekly April put/call open interest slipping to 0.84.

Peak call open interest for the April series arrives at the 60 strike, where 3,646 contracts currently reside. Another 2,507 calls are open at the April 57.50 strike, while about 2,000 reside at the April 62.50 strike. On the put side, some 2,870 contracts are open at the April 55 strike, with roughly 2,000 contracts at the April 52.50 and 57.50 strikes.

Technically, this week’s market turmoil has forced LVS to test key support at its 50-day moving average, which currently rests at $56.50. While LVS will likely beat Wall Street’s expectations, market turmoil or any unexpected hiccup in earnings could have a negative impact. As such, those looking to trade LVS ahead of earnings might want to consider an April 55-strike straddle using weekly options (simultaneously buying the 55-strike call and put). This trade was last asked for $3.33, or $333 per pair of contracts, placing breakeven at $58.33 on the upside (a 3.2% gain) and $51.67 on the downside (an 8.5% decline).

Continue reading for two more option trading ideas from the gaming sector…

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