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Play Casino Stocks with a Bearish Put on Las Vegas Sands

My indicators turned bearish last Friday, and because they continue to give solid sell signals, I am recommending a bearish put option on Las Vegas Sands Corp. (NYSE:LVS), the casino developer and operator.

As you can see in the chart of the S&P 500 below, from the open on Friday to Monday’s close, the market fell 3%.

Daily Chart of S&P 500 Index (SPX) — Chart Source: TradingView

So far, the short-term support level at the 3,260 level has held up nicely. The S&P 500 did cross below that level on Monday, but it has shown a surprising amount of resilience and closed back near 3,280 yesterday.

Unfortunately, I don’t think we have seen the worst of the coronavirus yet. According to the Centers for Disease Control and Prevention (CDC), the symptoms of the current virus may not appear for as long as 14 days after a person is exposed to it.

In other words, a person who has the virus may not show any symptoms for up to two weeks after they have it. They could just go about their everyday lives as if everything is fine and spread the virus without knowing it.

Last Friday, the market dropped from news that there was a second coronavirus case confirmed in the U.S. When that total went up to five confirmed cases over the weekend, we got another drop.

If things get worse and investors panic, the support levels shown in the chart above could be completely meaningless.

It’s Time for Protection, Not Panic

I want to be clear: this is not the time to panic and sell all of your stocks.

But until the situation is under control, traders and investors should exercise caution. That means avoiding bullish positions in airline and cruiseline companies, gambling and casino stocks, hotel companies, rental car and truck companies and pretty much any travel-related company.

LVS operates a casino in Macau, the city off the coast of China. The casino is already seeing less business.

The U.S. issued a travel advisory cautioning people against traveling to the region, and some companies are banning employees from visiting China. It doesn’t look like business will pick up any time soon.

This all means LVS will suffer in the short term, giving traders a chance to profit from a bearish put option.

Back and Forth

When reports of the virus were just making headlines at the beginning of last week, LVS fell. It struggled to stay above $68 per share, and the reports on Monday pushed it down to $61 in intraday trading.

That relatively low price drew in some value investors—many epidemics turn into buying opportunities—and that pushed LVS higher yesterday, which you can see below.

Daily Chart of Las Vegas Sands Corp. (LVS) — Chart Source: TradingView

But given all that we know about the situation so far, I don’t believe we’ve seen the end of this. As John Jagerson and Wade Hansen wrote in their piece on disease outbreaks, the news cycle’s effect during an outbreak can last up to three months.

In the long term, I don’t think the coronavirus scare will keep prices down, but until fear dies down, LVS is at risk of dropping below support at $60. I’m recommending an option with a strike just below that level because it is a cheap way to add some bearish protection to your portfolio.

Buy to open the Las Vegas Sands Corp. (LVS) April 17th $57.50 Puts (LVS200417P00057500) at $1.60 or lower.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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