Caesars Stock Draws Elevated Options Activity

Posted on: December 14, 2023, 02:22h. 

Last updated on: December 15, 2023, 09:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Amid speculation the Federal Reserve could cut interest rates as soon as the first quarter of 2024, growth stocks have rallied over the past several days, with gaming equities participating in that positive trend. Caesars Entertainment (NASDAQ: CZR) is in on the act, and options traders are taking note.

Caesars Entertainment
Caesars Palace Las Vegas, see above. Options activity surged in the operator’s stock today. (Image: Caesars Entertainment)

In late trading, Caesars stock is higher by 2.86%, extending its one-week gain to 11.55% while compelling options traders to get involved with contracts tied to shares of the Flamingo operator. Though the reasoning isn’t clear, options activity in the gaming name was unusually high on Thursday.

Caesars Entertainment is getting blasted in the options pits today, with 49,000 calls and 15,000 puts exchanged so far today, which is 23 times the volume typically seen at this point. Most popular is the January 19, 2024 $55-strike call, with new positions being opened there,” according to Schaeffer’s Investment Research.

It’s interesting to note that the January $55-strike call is popular with options traders. For those market participants to realize profits on those contracts, Caesars stock needs to move beyond $55 by the time markets close on January 19. The shares currently reside at just over $48, implying options traders are betting on significant near-term gains.

Clues from Caesars Options Activity

Because of its status as a growth stock and with a penchant for occasionally significant, event-driven moves, Caesars is often a favored target of options traders.

As such, the options market can provide valuable insight into what’s in store for shares of the online sportsbook operator over the near term. That may be happening right now.

Calls are the options contracts traders purchase when they’re comfortable betting the underlying security will appreciate. Puts are bought in anticipation of that security’s prices declining. In other words, data cited by Schaeffer implies overtly bullish positioning in Caesars options.

Caesars stock is up 15.73% year to date, which lags the 23.18% returned by the S&P 500. The Horseshoe operator slashed its outstanding liabilities to $12.45 billion as of September 30, down from $13.08 billion at the end of 2022. Those ongoing debt-reduction efforts will likely spark delight among investors, who have long viewed Caesars’ balance sheet as facing more headwinds than tailwinds.

Spike Arrived Against Challenges

While a catalyst for Thursday’s surge in Caesars’ options activity isn’t easily identifiable, a case can be made that the options buying is trending so heavily to the bullish side because there are some challenging headlines for the gaming company.

Specifically, JPMorgan analyst Joseph Greff lowered his price target on Caesars to $55 from $60, though he maintained an “overweight” rating on the stock. That followed TD Cowen slashing its price target on the Cromwell operator to $63 from $76, though that bank also kept an “overweight” grade on the shares.

Heading into 2024, sell-side analysts are expressing a preference for Macau operators among casino stocks. They note that domestically focused gaming companies could be pinched by reducing consumer discretionary spending. Caesars would be vulnerable in that scenario because it’s almost entirely focused on domestic markets.