Melco Crown Entertainment’s shares rose to the highest level since May last year after Options Traders – that’s traders in contracts that give the right (not the obligation) to buy or sell a security at a set price and date, if you were unaware – speculated the Macau casino operator is getting loan to fund a new project.
According to Bloomberg, almost 27,000 calls (which give the right to buy a security for a certain amount, the strike price, by a set date) were changed hands in the US on Friday to buy Melco’s American depositary receipts.
Four unidentified people who are familiar with the matter told Bloomberg that Melco Crown approached banks to finance the company’s Studio City project in Macau last week for a loan that may or may not be around $1.25 billion. The company is about three to four weeks away from hiring banks, the people said.
However, a New York-based provider of options-market analytics and senior options strategist at Whatstrading, Frederic Ruffy, said: “Expectations for stronger gambling revenue numbers this month would be good news for the company and could be partly the reason for the jump in the calls contract.”
The Bloomberg report also states that Melco’s most-active contracts were April $14 calls, accounting for more than half of the call volume after a single trade of 12,623 contracts that will pay should the shares rally 25% in three months. Before 20 January, the April $14 calls had an open interest of 749 outstanding contracts.
Ruffy explained that the April calls could have jumped because they are the only contracts that expire after Melco releases earnings on 22 February.
Nevertheless, a report by the Goldman Sachs Group this week suggests Melco Crown may face “more serious cannibalisation” of their markets in the next two years as more casinos open.