LVS: Beckon Lady Luck With Naked Puts

by Tyler Craig | September 4, 2012 9:25 am

Since carving out a bottom with a classic high-volume hammer candle in late July, casino stock Las Vegas Sands (NYSE:LVS[1]) has staged a convincing trend reversal. The positive price action has been confirmed by bullish developments in volume, with the last two advances occurring on above-average volume, and the last two consolidation periods occurring on below-average volume.

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The most recent spate of digestion has come in the form of a bull flag. With the rising 20-day moving average (red line in chart) approaching the 50-day moving average (blue line), it appears the flag might be ready for resolution to the upside.

To exploit the expected breakout, traders have a bevy of option strategies at their disposal. However, given the relatively cheap price tag of LVS — along with my natural affinity for high-probability plays — selling put options is my strategy of choice here.

Despite having less than three weeks to expiration, the out-of-the-money September puts still possess enough juice to make them worth selling. Traders willing to bet LVS stays above $40 by September expiration could sell the Sep 40 strike put for 68 cents. If LVS continues in bullish fashion, the puts will expire, allowing you to keep the entire $68 credit received at trade inception.

In the event LVS falls beneath $40 by expiration, you will be obligated to buy 100 shares at a cost basis of $39.32 ($40 – $0.68). Traders unwilling to purchase shares might consider exiting the trade if LVS reaches the put strike price of $40.

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

  1. LVS:

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