Trading Lady Luck via Las Vegas Sands (LVS)

by Tyler Craig | April 10, 2012 6:45 am

Though Monday’s down gap acted as a splash of cold water in the face of the bulls, the weakness in the equities market wasn’t evenly distributed. While most stocks followed the S&P 500 Index into the early morning abyss, others bucked the trend and quickly reversed into positive territory. The relative strength exhibited by these overachievers may point to a continued rise in the days to come.Las Vegas Sands (LVS) chart
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Las Vegas Sands Corp. (NYSE:LVS[1]) was one such standout that was aggressively bid-up all throughout the morning of Monday’s trading session. As a result of the surge, the casino stock was able to breach a multi-week resistance level. With higher prices potentially in the offing, now maybe an appropriate time to enter bullish option positions.

A conservative play worth considering is the May 57.50/62.50 bull call spread. To enter the position, traders would buy to open the May 57.50 call while selling to open the 62.50 call for a net debit around $2.45 or less.

The maximum risk is limited to the initial debit paid of $245 ($2.45 x 100 for each contract) and will be incurred if LVS sits below $57.50 by May expiration. The maximum reward is limited to the distance between strike prices (5) minus the initial debit, or $255. To capture the entire profit, LVS would need to rise above $62.50 by May expiration.

Breakeven on this position is $59.95, or the long call strike plus the premium paid. LVS closed at $60.62 on Monday, up 3.2% for the day. This is about 1.1% above this strategy’s breakeven price, so even if LVS makes no further moves higher, the spread will be profitable at expiration.

At the time of this writing, Tyler Craig had no positions on LVS.

  1. LVS:

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