Gambling stocks were all the rage on Thursday. The S&P 500 rose on the session, and my watchlist was littered with big gainers — but none stood taller than casino and gaming stocks. The catalyst for the sudden surge was the expectation-beating earnings report from Penn National Gaming (NASDAQ:PENN). In fact, it sent PENN stock up 14.3% by the closing bell, and brought buyers rushing into the industry.
That said, the buying bonanza was much needed. Casinos have been one of the hardest-hit areas due to the novel coronavirus. And while many sectors have fully recovered from the March massacre, these three tickers I have in mind remain a far cry from their peaks.
Nonetheless, they don’t completely lack bullish characteristics. And with Thursday’s rally breathing new life into the space, we could see some upside follow-through in the day’s to come.
That said, here are three of the best gambling stocks to consider:
After laying out the price levels that matter, we’ll suggest which options spreads are best on these gambling stocks. So, let’s dive in.
Gambling Stocks to Buy: MGM Resorts (MGM)
After PENN, MGM stock was the biggest gainer of all the casinos. It surged 10.4%, with more than 35 million shares traded. The participation was well above average, and propelled the shares back above the 50-day moving average. Not only that, but we also broke above a horizontal resistance pivot — clearing the way for a push toward $21.
Moreover, Thursday’s breakout is what buyers have been waiting for to signal momentum has returned. Sure, the fire could fizzle. However, I’m willing to bet dips will get bought, and the path of least resistance has now shifted from sideways to up.
So, if you think MGM stock remains above $16 for the next month, then sell the Sept. $16 put for around 70 cents.
Wynn Resorts (WYNN)
While not as impressive as MGM’s performance, the 7.4% jump in Wynn on Thursday was still noteworthy. What I like about the rally is it’s once again reaffirming $70 as a major support zone. It offers an obvious line in the sand for a stop loss to bail on bullish trades if it gets broken.
Additionally, the flat moving averages make extremely bullish trades a low probability bet. At a minimum, we’d need to see prices rise above the 50-day before getting overly aggressive. But if $70 is going to hold firm, there isn’t any reason why we couldn’t build a neutral to slightly bullish options trade.
In situations like this, I like call diagonal spreads.
The Trade: Buy the Sept. $75 call while selling the Aug. $80 call for a net debit of $5.
Consider stopping out on a close below $70. Shoot for $100 to $200 as a profit target per spread.
Gambling Stocks to Buy: Las Vegas Sands (LVS)
The final pick of our gambling stocks trio is Las Vegas Sands. Its gain on Thursday was the least impressive of the three at 4.3%. Like WYNN, however, Thursday’s ramp did reiterate the major support zone at $42.50 and could be the spark for a new advance. Since the shares are still below both the 20-day and 50-day moving averages, buyers have a lot of work to do before the overall trend turns higher, though.
Overall, the beautiful thing about entering the trade near support is we only have a small amount of risk. In other words, we can jump ship quickly if the stock sours. The implied volatility is low enough (17th percentile) to make long premium plays attractive. I like bull call diagonals.
The Trade: Buy the Sept. $45 call while selling the Aug. $48 call for approximately $2.35.
Use a break of $42.50 as your stop loss. For a target, shoot for $50 to $100 per contract.
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